$1.3 trillion Morgan Stanley no longer expects December fed rate cut after strong US jobs data

Morgan Stanley no longer expects the Federal Reserve to cut interest rates in December 2025. This change comes after stronger-than-expected job data in the US. The S&P 500 (SPY) is trading near its 52-week high of $689.70 and has returned 14.05% so far this year.

On X, Watcher.Guru tweeted: "$1.3 trillion Morgan Stanley no longer expects the Federal Reserve to cut interest rates in December."

US job market update

Morgan Stanley cited a "sharp and broad rebound in payrolls (+119k)" as proof that the summer slowdown in jobs might have been exaggerated, as per the report by Investing.com. The US unemployment rate went up a little, by 0.1%, to 4.4%. But Morgan Stanley says strong job growth shows the job market is steady. The average number of jobs added over three months rose to 62,000 from 18,000, even after small changes to past numbers.


Employment gains were broad, covering both goods and services sectors. Morgan Stanley explained that the small rise in unemployment to 4.44% was due to more people entering the labor force, not layoffs. Without the higher labor force participation, the unemployment rate would have actually fallen.

Morgan Stanley fed rate cut outlook

Morgan Stanley says the Federal Reserve may lower interest rates in January, April, and June 2026. They expect the highest rate to stay at 3–3.25%, according to Investing.com. The S&P 500 has a price-to-earnings ratio of 16.49 and pays a 1.11% dividend. Investors can use InvestingPro to see 7 more exclusive tips on SPY’s outlook amid these rate changes.

Other banks have different views:

• Wells Fargo expects a 25 basis point rate cut at the Fed meeting on October 29, and two more cuts before the end of 2025.
• ING also expects a rate cut next month and another in December.

Goldman Sachs says concerns about AI investment sustainability are overblown, noting AI is improving productivity and needs high computational power, as per the report by Investing.com. In geopolitics, President Trump commented on US-China trade tensions, saying interactions with President Xi could become "testy" due to China’s approach to international relations.

FAQs

Q1. Why did Morgan Stanley change its Fed rate forecast?

Morgan Stanley changed its forecast because US job data showed a strong rebound in payrolls, suggesting the labor market is stable.

Q2. When does Morgan Stanley now expect the Federal Reserve to cut interest rates?

Morgan Stanley now expects Fed rate cuts in January, April, and June 2026, keeping the terminal rate at 3-3.25%.