New York, July 23 -- Morgan Stanley Research expects the US Federal Reserve to keep interest rates unchanged through 2026 despite market expectations of at least one rate hike, arguing that moderating inflation and already-tight financial conditions reduce the need for further policy tightening.

In a report titled "Watch Out for a Fed Pause", the investment bank said markets may be overestimating the likelihood of additional rate hikes this year, while its economists expect inflation to continue easing.

"We expect a lower inflation trajectory that keeps policy on hold this year, potentially followed by two rate cuts in 2027 as inflation gradually normalizes," said Michael Gapen, Chief US Economist for Morgan Stanley Research.

Gapen add...