Morgan Stanley, Deutsche Bank Forecast Three 25‑bp Fed Cuts by Year‑End - Markets Put 95% Odds on September

Two big banks just shifted their rate decks. Morgan Stanley (NYSE: MS) and Deutsche Bank (NYSE: DB) now expect the Federal Reserve to chop interest rates by 25 basis points at each of its remaining policy meetings this year - September, October and December.

That's a quicker easing path than both had been penciling in a week or two ago. Each firm had earlier forecast fewer cuts; now they're lining up three 25-bps reductions after recent data showed cooler inflation pressures and signs of a softer labor market.

Morgan Stanley's team is even more aggressive on timing. They project four straight 25-bps cuts starting at next week's meeting and running through January, then two more in April and July 2026. Deutsche Bank's chief U.S. economist, Matthew Luzzetti, put it bluntly: their inflation and labor models don't support rates well below neutral, but "risks are skewed towards more reductions in 2026."

Why the flip? A softer jobs report and milder-than-feared price readings have given the Fed room to act sooner than many thought. Fed Chair Jerome Powell signaled at the last press conference that a September cut was on the table because labor-market risks have risen, while still flagging that inflation is not tamed.

Markets have already priced the change. The CME FedWatch tool showed roughly a 95% chance of a 25-bps cut next week, with only a slim probability of a 50-bps move. Standard Chartered is the outlier - it's the one big shop still forecasting a 50-bp drop this month.

What this means for markets, in plain terms: front-end Treasury yields are likely to react quickly to any confirmed path of cuts, the yield curve could shift, and volatility around rate-sensitive names will probably pick up. Banks face margin pressure as the policy rate heads lower; long-duration growth names normally brighten when rates fall; commodity and FX flows also tend to reset on clearer easing signals. Those are patterns seen in past easing cycles - not a road map or a forecast.

Small detail that matters: the Fed's last cut was 25 bps in December 2024. If the Fed follows the schedule the banks expect, the U.S. will move into a distinct easing phase by the end of the quarter.

One handy snapshot to close on - the U.S. 10-year yield sits around 4.08% this morning. Will it trade materially lower if the Fed confirms three cuts? Time will tell.