【Iran Crisis】Morgan Stanley maintains its forecast of two interest rate cuts by the Federal Reserve this year, but the impact on oil prices may delay the rate cut until September

SocialAnxietyStaker · 2026-03-12T04:02:21+00:00

Morgan Stanley forecasts that the Federal Reserve may cut interest rates as early as June, but due to Middle East tensions and oil prices, the first rate cut could be delayed until September or December. The interest rate futures market expects only one rate cut of 0.25 percentage points. If the rate cut is delayed, the subsequent reduction could be larger, and inflation pressures may intensify in 2026.

SocialAnxietyStaker

2026-03-12 04:02:21

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Market concerns about Middle East tensions affecting the Federal Reserve’s rate cut timetable. Morgan Stanley suggests the Fed may resume rate cuts as early as June, but the timeline could be pushed back due to oil price shocks from the Iran conflict.

Interest rate futures market expects only one rate cut this year

Despite rising energy prices increasing inflation pressures, Morgan Stanley’s chief U.S. economist Michael Gapen and his team maintain their earlier forecast of two rate cuts this year, each by 0.25 percentage points, in June and September. However, Morgan Stanley also notes that if geopolitical uncertainties persist, the first rate cut could be delayed until September or even December, with subsequent cuts possibly postponed until 2027.

“Based on historical experience, the Fed might consider easing monetary policy earlier, ignoring oil-driven price pressures, and the current situation remains optimistic.”

Interest rate futures market expects only one cut this year, by 0.25 percentage points, earliest possible in October.

If the Fed delays rate cuts, the size of future cuts could be larger

Although U.S. President Trump has repeatedly stated that the conflict with Iran “will end soon,” and the International Energy Agency (IEA) agreed to release 400 million barrels of oil on Wednesday, Brent crude oil prices remain around $90 per barrel.

“The Fed may ultimately implement a more substantial easing than originally planned to balance its dual mandate (price stability and full employment). The second risk to the monetary policy outlook is that, although rate cuts are delayed, the magnitude of cuts could be larger.”

Morgan Stanley believes that if oil prices cannot fall back to pre-conflict levels of around $70 per barrel, inflation pressures will become more pronounced in 2026, potentially leading to unemployment rates remaining slightly high through the end of 2028.

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