Morgan Stanley analysts on the balancing act at the Fed:
- In the very short-term, we think the best case scenario for equities this week is that the Fed can deliver a 50bp rate cut without triggering either growth concerns or any remnants of the yen carry trade unwind—i.e., purely an “insurance cut” ahead of macro data that is assumed to stabilize
MS on the bond market:
- pricing indicates that monetary policy is behind the curve
- rates staying higher for longer risks disrupturing economy
But, the worry is that a 50bp cut risks being perceived as the Federal Reserve acknowledging trouble ahead for the economy. Such concerns centre on worries over a deteriorating labour market, an economic slowdown, or even recession.
MS also nod to the danger of another episode of yen carry trade volatility.
Fed Chair Powell