Here's why Morgan Stanley economists expect the Federal Reserve to make a half percentage point rate cut.
Morgan Stanley economists see a half percentage point, or 50 basis point cut to the Fed funds target rate at the Fed's July meeting.The economist said they see downside risks to the economy from trade tensions and weaker global growth.
Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee meeting in Washington, June 19, 2019.Morgan Stanley economists expect the Federal Reserve to make a half percentage point rate cut to head off downside risks and the impact of a weakening global economy and trade tensions.
"Risks to the outlook remain skewed to the downside. A non-linear impact to growth could materialize if financial conditions tighten, bringing corporate credit risks to the fore," the economists wrote in a note Wednesday. The economists said a strong policy response is "necessary to guard against risks of a further, sharper loss of economic momentum. Weak incoming data, lingering trade tensions, and preventing both financial conditions from tightening and a non-linear adverse impact on growth are key reasons for a front-loaded adjustment."
The fed funds futures market is pricing in a full 25 basis point rate cut and the potential for slightly more. The Fed's benchmark fed funds target rate range is currently 2.25 to 2.50%.
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