Daiwa: The Fed is expected to start cutting rates this month, but non-farm data may pose a key risk.

Morgan Stanley revised their expectation that the Federal Reserve will cut interest rates twice this year at the end of August. They reiterated their forecast that the Fed will cut rates in September, but warned that it is not a certainty. Morgan Stanley pointed out that a strong employment number or a sharp increase in inflation driven by tariffs could delay the Fed's plan to cut rates this month. They added that internal debates within the Fed could also be an obstacle, as some policymakers may believe that it is premature to cut rates. On the other hand, a significant decrease in employment and market bets on an imminent rate cut could prompt the Fed to act more quickly. Nonetheless, Morgan Stanley still believes that the Fed will continue to follow a dovish path next year. The institution still assumes that the Fed will cut rates by a quarter point each quarter in 2026, with a terminal interest rate of 2.75% to 3.00%.