Morgan Stanley has withdrawn its call for a quarter-point Federal Reserve rate cut in December. The change came after September’s stronger-than-expected jobs report pointed to a more resilient U.S. economy.
Nonfarm payrolls rose by 119,000 in September, rebounding from a downwardly revised decline of 4,000 in August. Economists surveyed by Reuters had expected a smaller increase of 50,000 jobs. The earlier August figure had originally shown a gain of 22,000.
Despite the stronger payrolls number, the unemployment rate climbed to 4.4%, its highest level in four years.
Morgan Stanley strategists said the sharp rebound in job growth suggests the slowdown seen during the summer may have been overstated. They added that the overall strength in payrolls points to stabilization, even though unemployment has edged higher.
The September report was originally scheduled for release on October 3 but was delayed due to the 43-day U.S. government shutdown.
Following the new data, Morgan Stanley now expects the Federal Reserve to begin cutting rates in January 2026, with additional reductions planned for April and June. The bank sees the policy rate falling to a range between 3.0% and 3.25% by mid-2026.
Traders also continued to price in the likelihood that the Fed will skip a December rate cut. However, there was a modest pullback in those expectations after the jobs numbers were released.
