Following the release of the US jobs report for September, Morgan Stanley has revised its expectations regarding an interest rate cut. The financial institution no longer anticipates a rate reduction in December. The report indicated that the economy added 119,000 positions, with the jobless rate slightly increasing to 4.4 per cent.
According to Morgan Stanley economist Michael Gapen, the strong rebound in payrolls suggests that the previously perceived slowdown during the summer months may have been overstated. The stabilisation in payrolls influenced the firm’s updated outlook. Morgan Stanley is a global financial services firm that provides a wide range of services to a large and diversified client base that includes corporations, governments, financial institutions and individuals. The firm operates through three business segments: Institutional Securities, Wealth Management, and Investment Management.
While Gapen acknowledged a rise in slack, the strength in payrolls indicates stabilisation in the labour market. He now projects three rate cuts in the first half of 2026. The overall outlook for Federal Reserve policy remains unchanged, with expectations of easing in response to soft labour market conditions and a desire to align monetary policy with neutral levels.
Gapen anticipates rate cuts in January, April, and June of the coming year. He noted that payrolls are subject to volatility, making it premature to draw definitive conclusions. However, indications of stabilisation in the labour markets could shift probabilities toward a scenario where labour data more closely aligns with the resilient trends observed in GDP and consumer spending.
