Welcome to Thoughts on the Market, I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley.
Today, I'm going to talk about why the number of Fed rate cuts this year may matter less than you think.
It's Wednesday, March 5th at 2pm in London.
Financial markets spend a lot of time discussing the Federal Reserve.
And for good reason,
the central bank of the world's largest economy plays a central role in fighting inflation and setting interest rates.
And what they'll do this year is topical and shifting.
At Morgan Stanley,
our economists think
that U.S. tariff and immigration policy will lead the Fed to keep rates somewhat higher for somewhat longer than they did at the start of the year.
Yet we think there may be just a little bit too much focus on just how much the Fed changes policy over the course of the year.
Indeed, we'd go as far to say that, given the choice, investors should be rooting for less change, not more.
To start, for all that has happened in the world since the end of October of 2024,
expectations for the Fed's interest rate path have been remarkably stable.
The U.S. two-year Treasury, which is a decent proxy of where the Fed's rate will average over the next 24 months,
has hovered in a very narrow range.
It simply hasn't been telling us very much.
Other factors have been moving markets.
There's also a pretty reasonable rule of thumb from history.
Stability is good.