Morgan Stanley Warning: If Unemployment Rate Falls Below 4%, Fed May Be Forced to Raise Interest Rates

BlockBeats News, June 27th - Morgan Stanley maintained its baseline prediction that the Fed will keep interest rates unchanged within the year, but warned that if the unemployment rate falls below 4% or if inflation remains high, this assessment will be forced to shift towards a rate hike. Analyst Michael Gapen pointed out in a client report that the data since the June FOMC meeting has made the bank "somewhat reassured" about the "no rate hike" baseline - oil prices have fallen after the US-Iran memorandum of understanding was signed, and it is expected that the tariff pass-through effect is peaking. Morgan Stanley predicts that overall and core PCE inflation in the fourth quarter will be 3.2% and 3.0%, respectively, well below the median expectations of FOMC participants. In terms of the labor market, Morgan Stanley expects a monthly addition of 50,000 to 60,000 jobs in the summer, enough to keep the unemployment rate broadly stable.

However, Gapen warned that if the unemployment rate falls below 4.0%, the Fed may consider the labor market overheating risk enough to support a rate hike; if the monthly core inflation rate continues to stay at 0.3% or above, or if the Middle East conflict escalates again, the view will also be reassessed. At the time of this assessment, Brent crude oil had fallen to around $72.6, and the market is closely watching the upcoming employment and inflation data to calibrate expectations for the Fed's policy under Chairman Powell.