Reserve

Chair

Ellen Zentner, Morgan Stanley’s Chief US Economist, recently made headlines by stating her belief that the Federal Reserve has concluded its current cycle of interest rate hikes. In a recent episode of the What Goes Up podcast, Zentner shared her insights on the Fed’s decision to maintain the benchmark federal interest rate. Moreover, she predicts that the Fed will keep rates steady until it is prepared to initiate rate cuts next year. 
Zentner’s comments come at a time when inflation is showing signs of slowing down. Consequently, her views add another layer to the ongoing debate about the future trajectory of U.S. monetary policy.&nbsp; 
Additionally, she highlighted the potential impact of a Republican-led government shutdown, which could deprive policymakers of crucial economic data, thereby influencing their policy decisions. This situation, she suggests, could strengthen the Fed’s resolve to maintain the status quo in their upcoming November meeting. 
A recent Reuters report confirmed the Federal Reserve’s recent decision to hold interest rates steady, adopting a more hawkish stance than previously expected. According to the report, the Fed projects a further rate increase by the end of the year and expects to maintain a tighter monetary policy through 2024. 
Fed Chair Jerome Powell, however, cautioned that these projections are not set in stone and could change based on incoming economic data. This new information aligns with Zentner’s observations and adds weight to her prediction that the Fed will keep rates steady for the foreseeable future. Moreover, experts cited in the Reuters article agree that the U.S. economy is performing better than expected, thereby allowing the Fed to maintain this hawkish stance. 
<h2 class="wp-block-heading" id="conditions-for-future-rate-increases">Conditions for future rate increases</h2> 
According to Zentner, there are specific conditions that must be met for the Fed to consider future rate increases. One is a noticeable increase in slack in the labor market coupled with a slowdown in employment growth. The other condition involves a significant momentum shift in the essential services sector, deviating from its current trend. 
Zentner also offered her predictions for interest rate cuts in 2024, which she expects to commence in March and continue at a pace of 25 basis points quarterly. While the Fed currently anticipates two rate cuts next year, Zentner suggests that there may be some disagreement on this outlook within the institution. 
The political landscape could play a significant role in shaping the Fed’s monetary policy in the coming months.

U.S. Fed’s rate hike cycle over? Morgan Stanley’s Chief Economist weighs in

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