Eben@CANSLIM ResearchMorgan Stanley & Co. LLC now expects two further 25bp Federal Reserve rate hikes, in December and March, taking the federal funds target range to 4.25-4.5% in 1Q27. The call follows a September FOMC decision that raised the policy rate by 25bp to 3.75-4.0% and a press conference the bank reads as hawkish. The decisive signal, in Morgan Stanley’s view, was Chair Warsh’s description of the move as removing “a dose of accommodation” — language implying policy is not yet restrictive and the Fed has more work to do.
Key Takeaways
- The Federal Reserve raised its policy rate by 25bp to 3.75-4.0% at the September 2026 FOMC meeting, a move Morgan Stanley says was widely expected after August inflation data.
- Morgan Stanley now projects 75bp of cumulative tightening, adding a third 25bp hike to its prior path, for a terminal target range of 4.25-4.5% in 1Q27.
- Chair Warsh said he would be “hard-pressed to describe broad financial conditions as restrictive,” describing the decision as removing “a dose of accommodation” — a phrase he used twice.
- FOMC participants revised the longer-run neutral rate up to 3.25% from 3.06%, which Morgan Stanley says strengthens the case for a higher terminal rate.
- Morgan Stanley does not rule out an October hike, which would complete the 75bp of tightening by year-end, but expects patience to prevail.
What Morgan Stanley’s September FOMC Note Says
In a report titled “September FOMC Takeaways: Removing a dose of accommodation,” Morgan Stanley & Co. LLC chief US economist Michael T Gapen and colleagues Sam D Coffin, Diego Anzoategui, Arunima Sinha, Heather Berger and Lingdi Xu argue that the September decision marks the beginning of the removal of accommodation rather than its end. The note, dated September 16, 2026, raises the bank’s monetary policy forecast to 75bp of cumulative tightening, comprising 25bp hikes in December and March, up from the 50bp it expected entering the meeting.
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