Morgan Stanley’s research team told clients that the Federal Reserve is poised to pivot from tightening to easing, forecasting “four back-to-back 25-bp rate cuts starting next week and continuing through January,” and projecting “two further cuts projected for April and July 2026.” The sequence would amount to a cumulative 150 basis points of easing from current levels by July 2026, a shift with significant market and economic implications.

Financial markets have already internalized much of that view. The CME FedWatch Tool showed traders pricing a 92.7% probability of a 25-basis-point cut at the Fed’s next meeting, with only a 7.3% chance of a larger 50-basis-point move. Short-term interest-rate instruments and money markets have tightened around the expectation of imminent easing, a dynamic that has depressed short-end Treasury yields and softened the dollar in recent sessions.

Morgan Stanley’s call underscores how quickly the policy outlook can change when inflation moderates and growth slows. Economists at the firm pointed to easing inflation readings and signs of cooling in labor-market indicators as the rationale for an early move to cuts, arguing that the risk of overtightening is now more salient than the risk of premature easing. In their note, the strategists framed the expected cuts as a response to “slower wage growth and disinflationary goods prices,” though they emphasized the Fed’s continued data dependence.

For markets, the practical effects could be immediate. A sustained path of quarter-point cuts would typically compress short-term yields, lower borrowing costs for consumers and businesses, and lift risk assets. Mortgage rates, which have tracked the broader Treasury complex, could fall, potentially reviving housing demand after a prolonged slump. On the other hand, persistent cuts may pressure banks’ net interest margins—squeezing profits at a time when credit quality will be closely watched—and could cause some investors to reassess the value of long-duration assets if growth expectations dim.

Policy-makers at the Fed have repeatedly stressed that decisions will hinge on incoming data, particularly on inflation and employment. The central bank’s “higher for longer” messaging over the past year helped drag down inflation from multidecade highs, but it also left the policy rate at levels that, if sustained, could amplify recession risks. A rapid sequence of cuts would shift that balance, easing financial conditions while raising questions about how quickly the Fed could reverse course if inflation re-accelerates.

Market strategists said the brokerage’s explicit timeline—four cuts by January, two more in 2026—offers a concrete scenario investors can price. But the path is far from certain: a handful of hotter-than-expected inflation prints or a surprising rebound in payrolls could keep policy tighter for longer. For consumers and businesses, the more immediate takeaway is that the era of rising policy rates appears to be drawing to a close, with meaningful easing now a high-probability scenario priced into markets.