After correctly predicting the interest rate cut in September, Morgan Stanley forecasts that the next round of significant easing will depend on the employment market

According to the financial news app Zhitong Finance, Morgan Stanley's economists on Wall Street, who accurately predicted the Federal Reserve's 50 basis point rate cut decision on Wednesday, stated that another significant rate cut will depend on the weakening of the US labor market. The bank's chief US economist Michael Feroli continues to believe that there will be another 50 basis point rate cut in November, but he noted that this view depends on the results of the upcoming employment report.

Since August 2nd, this economist has been calling for a 50 basis point rate cut at Wednesday's FOMC meeting, even after a colleague abandoned this bet, he still insisted on it.

Morgan Stanley's rate strategists are also cautious, expecting US Treasuries to remain range-bound until the direction provided by the September employment report. The bank withdrew its recommendation for steepening trades in the 3-year and 30-year Treasury yield spread, but believes there is an opportunity to restart these trades before the next employment report is released.

In a report to clients after the Fed's decision, Feroli wrote, "We still expect the pace of rate normalization to be faster than the median, and the expectation of a 50 basis point rate cut at the next meeting in early November will depend on whether the two employment reports during this period further soften. Conversely, more moderate employment data will lay the foundation for the FOMC to cut rates by 25 basis points at each meeting for the remainder of the year."

In addition, Citigroup's economists have abandoned their call for a 50 basis point rate cut before this week's meeting, with internal disagreements on the bond market outlook but evenly matched. Feroli continued to state that the Fed is lagging behind the situation in starting rate cuts and will take massive action.

While Morgan Stanley is feeling confident, other Wall Street banks have begun to adjust their forecasts. Goldman Sachs economists led by Jan Hatzius currently expect the cycle of consecutive 25 basis point rate cuts to be longer, extending from November to June 2025. However, they wrote that the decision between a 25 basis point and 50 basis point rate cut in November is a "critical moment," and added that the determining factor will be the next two employment reports.

On Thursday, US Treasury yields saw a slight decline, led by short-term bonds, with the 2-year Treasury yield falling by 4 basis points to 3.58% and the 10-year Treasury yield dropping by 1 basis point to 3.69%. Traders had previously bet that the Fed would cut rates by another 70 basis points this year.

Morgan Stanley's rate strategists led by Jay Barry wrote, "In the coming weeks, the US Treasury yield curve may become more narrow in its fluctuations. It is unlikely that the money market will reflect a faster pace of rate cuts or lower terminal rates until we see the September employment report."