Morgan Stanley: The Data Roadmap to Rate Hikes
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Key Views
The report anticipates 4Q/4Q headline and core PCE of 3.2% and 3.0% respectively, notably below the FOMC median. Tariff transmission is nearing completion, paving the way for substantial core goods disinflation. Payroll growth is projected to slow from a 1-5 monthly average of 114,000 to 50,000-60,000 during June-August. Several hawkish dots likely originate from non-voting regional Fed presidents, while voting members lean toward a hold.
Outlook
The September FOMC meeting represents a critical checkpoint, preceded by June-August data. Morgan Stanley would reconsider its stance if core inflation prints persistently exceed 0.3% monthly, the Middle East conflict reignites driving oil prices higher, or the unemployment rate falls below 4.0%. Additionally, some officials may support hikes purely from a risk-management shift rather than data dependency. No specific securities recommendations were provided.
Key exhibits
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