# Morgan Stanley Forecasts Fed Will Not Raise Rates in 2026

**Published:** 2026-08-29T08:18:29.436Z  
**Topic:** Fed Rates  
**Sentiment:** neutral  
**Publisher:** TrendWatcher — https://www.trendwatcher.in/article/29ff9a34-b498-40dc-81a6-b428cd8d46fd

Morgan Stanley projects the Federal Reserve will hold rates steady through 2026, citing weak non-farm payrolls and lower-than-expected inflation forecasts.

Morgan Stanley’s chief global economist Seth B. Carpenter maintains that the Federal Reserve will not raise interest rates in 2026, citing recent labor market weakness and a downward trajectory for inflation [1, 3]. This outlook contrasts with internal Federal Reserve projections from earlier in the year, where half of the 18 voting officials indicated at least one potential rate hike remained on the table [3, 6].

| At a glance | |
|---|---|
| Fed 2026 Rate Outlook | No hikes expected [1] |
| 7-Year vs 30-Year Treasury Spread | Near 65 basis points [3] |
| 7-Year vs 30-Year Target Spread | 100 basis points [3] |
| Market Pricing | Still reflects higher tightening expectations [3] |

## Policy Divergence and Economic Data
The firm’s baseline forecast relies on the recent non-farm payroll data, which arrived significantly below expectations, providing the Federal Reserve with room to remain on the sidelines [3]. Carpenter noted that the firm’s internal inflation models sit well below the FOMC’s median expectations, bolstered by potential adjustments to the PCE (Personal Consumption Expenditures) price index calculation that could further suppress reported inflation readings [6]. 

While market participants have priced in higher tightening, Morgan Stanley’s strategy team suggests the current market pricing remains overly aggressive [3]. Consequently, the bank has advised investors to bet on a steepening yield curve, specifically targeting an expansion in the spread between 7-year and 30-year U.S. Treasury notes [6]. This spread was trading near 65 basis points as of early July, with the firm setting a target of 100 basis points [3].

## Differing Views on Forward Guidance
The debate over future policy is complicated by shifting communication styles within the Fed. While Fed Chair Kevin Warsh has signaled a move away from rigid "forward guidance" in favor of data-dependent decision-making, other officials like Governor Christopher Waller maintain that signaling future rate paths remains a valuable tool [3, 6]. Waller cautioned that while forward guidance helped tighten financial conditions during the pandemic, it can become a liability if officials remain too rigid during periods of rapidly changing inflation [6].

Beyond the U.S., the policy landscape remains bifurcated. Morgan Stanley expects the European Central Bank to proceed with a 25-basis-point hike in September, driven by concerns over historical policy lags and the need to maintain inflation targets [1]. In contrast, the U.S. central bank faces a more complex environment where AI-driven capital expenditure and productivity gains are being debated as potential factors that could push the neutral real interest rate higher, potentially complicating the case for future easing [1].

## What to watch
*   **PCE Inflation Data:** Monitor upcoming adjustments to the PCE statistical methodology, which Morgan Stanley expects could significantly lower headline inflation readings [3].
*   **Treasury Yield Curve:** Watch the 7-year to 30-year Treasury spread; the firm’s target of 100 basis points serves as a benchmark for their view that market pricing for Fed tightening is currently too high [3].
*   **Labor Market Reports:** Future non-farm payroll releases will be critical, as the recent "significantly lower" reading remains the primary justification for the bank's pause forecast [6].

Whether the Federal Reserve can sustain its current policy stance depends on whether the recent cooling in employment data proves to be a durable trend or a temporary anomaly in an otherwise robust economy.

## Sources
1. 东方财富网 — [美联储今年料不会加息！大摩首席“辛特拉研判”：沃什正悄悄变脸？](https://finance.eastmoney.com/a/202607063794398269.html)
2. Zhitongcaijing — [通胀重燃后美联储官员发声 降息需更多耐心](https://www.zhitongcaijing.com/content/detail/1072561.html)
3. Itiger — [美联储官员发声！大摩最新预测 - 老虎证券](https://www.itiger.com/hans/news/2649672794)
4. 东方财富网 — [美联储主席热门候选人发声：应该继续降低利率 华尔街机构集体“撕报告”](https://finance.eastmoney.com/news/1351,202512083585627198.html)
5. Usstock — [全线跳水！美联储主席，重磅发声！霍尔木兹海峡，大消息！俄军动用新...](https://usstock.jrj.com.cn/2026/08/29083558280468.shtml)
6. Finance — [美联储官员发声！大摩最新预测_新浪财经_新浪网](https://finance.sina.com.cn/world/2026-07-07/doc-inifxpii1642475.shtml)

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Cite as: TrendWatcher, "Morgan Stanley Forecasts Fed Will Not Raise Rates in 2026", https://www.trendwatcher.in/article/29ff9a34-b498-40dc-81a6-b428cd8d46fd