Morgan Stanley Tells Fed "Hold My Beer" as Kashkari Keeps the Hike Door Open 🍺

Wall Street bank Morgan Stanley expects the Federal Reserve to leave interest rates unchanged throughout the year, but has warned that a rate hike could return if inflation persists or the unemployment rate falls below 4%. The outlook comes as U.S. PCE inflation climbed to 4.1%, its highest level since 2023, according to a prior report, heightening concerns that price pressures remain sticky.

In a separate statement, Fed President Neel Kashkari cautioned that policymakers may need to raise rates if inflation continues to run above target. Kashkari's remarks leave the door open to further tightening even as oil prices have declined since the U.S.–Iran peace deal, a development that could ease energy-driven inflationary pressure on the broader economy.

Morgan Stanley's base case still points to no rate change this year, framing any hike as conditional rather than imminent. The bank specifically identified two triggers — sustained elevated inflation or a drop in unemployment below 4% — that could shift its forecast. Falling oil prices following the diplomatic agreement have been cited as a factor supporting the view that a Fed rate hike is unlikely in the near term.

Not all Wall Street institutions share that view. As reported earlier, Bank of America has projected three Fed rate hikes this year, beginning at the September FOMC meeting and continuing through the December FOMC meeting. That contrast underscores ongoing disagreement among major banks about the trajectory of U.S. monetary policy.

Crypto traders have continued to price in the possibility of additional tightening, with positioning across the market reflecting sensitivity to Fed commentary and incoming inflation data. The $BTC and broader crypto complex have remained responsive to any shifts in rate expectations, with Kashkari's hawkish-leaning remarks drawing particular attention from participants watching the calendar between now and the next FOMC meeting.