Morgan Stanley drops call for December Fed rate cut after strong jobs data

Morgan Stanley on Thursday scrapped its forecast that the U.S. Federal Reserve would cut interest rates by a quarter-point at its December meeting after a firm September jobs report showed signs of a resilient economy.

Non-farm payrolls increased by 119,000 jobs after a downwardly revised 4,000 drop in August, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast 50,000 jobs would be added after a previously reported 22,000 gain in August.

However, the unemployment rate increased to a four-year high of 4.4% in September.


"The sharp and broad rebound in payrolls suggests the summertime slowdown might have been exaggerated," said strategists at Morgan Stanley.

The strength in payrolls suggests stabilization, even as the unemployment rate has inched higher, they added.

The jobs data was initially due on October 3, but was delayed by the 43-day shutdown of the U.S. government.

Morgan Stanley now expects the Federal Reserve to cut rates in January, April and June 2026, bringing the policy rate down to 3% to 3.25%.

Traders continued to bet that the Fed will skip an interest rate cut in December, though there was a small pullback in those bets after the release of the jobs data.