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Morgan Stanley analysts say Fed to cut U.S. rates in September

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Morgan Stanley analysts say Fed to cut U.S. rates in September
FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo   -   Copyright  Leah Millis(Reuters)
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NEWYORK (Reuters) – Morgan Stanley <MS.N> analysts said on Monday that they now expect the U.S. Federal Reserve to cut rates in September and then again in October.

“Trade’s ‘simmer’ has begun to boil, business sentiment and capex (capital expenditures) have softened further, global growth remains weak and inflation expectations have fallen,” while the gap between 3-month <US3MT=RR> and 10-year U.S. government bonds <US10YT=RR> points to overly restrictive monetary policy, the investment bank’s analysts said in a note.

The analysts previously predicted a cut in October alone, saying the central bank would “wait for further evidence that downside risks are weighing on the economy.”

The bank joins a number of investors betting that the Fed’s first rate cut since 2008, late last month, will be the first of several moves to lower borrowing costs. Goldman Sachs <GS.N> said earlier this month it sees a strong chance of rate cuts in both September and October.

Morgan Stanley is one of 24 so-called primary dealers that can trade directly with the Fed’s main market desk in New York.

(Reporting by Trevor Hunnicutt; Editing by Will Dunham)

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