According to APP, Morgan Stanley , along with Goldman Sachs and Barclays , on Thursday postponed its expectation for the next Federal Reserve rate cut from June to September, after the Fed warned of inflation risks amid the Middle East conflict. Morgan Stanley now expects rate cuts of 25 basis points each in September and December, up from its previous forecasts of June and September.

The Federal Reserve kept interest rates unchanged on Wednesday as expected. Chairman Jerome Powell stated at the post-meeting press conference, "In the near term, rising energy prices will push up overall inflation, but it is too early to judge the scope and duration of its potential impact on the economy." The latest forecasts from Fed policymakers indicate that interest rates will only be lowered by 25 basis points by the end of the year. Major Wall Street investment banks still expect two rate cuts. Morgan Stanley strategists noted in a report, "The Fed's cautious stance means that rate cuts will be delayed. The main risk in our view remains that rate cuts will come later, or even not at all. Conversely, a second surge in oil prices could lead to weaker economic activity and the labor market, thus prompting rate cuts."

Latest market data shows that the Federal Reserve's federal funds rate is currently maintained at 3.50%-3.75%, and the market has priced in only one rate cut this year, down from two. The probability of a 25 basis point rate cut in September has risen to over 65%. The surge in oil prices triggered by the Iranian conflict has become a key variable, directly amplifying the risk of upward inflation and forcing investment banks to collectively revise their timing. Analysts reasonably speculate that if oil prices remain high into the second quarter, the Fed's rate cut path for the year may be further delayed, and the strong dollar will continue to suppress commodities and risk assets.

The event has a particularly direct and profound impact on the global economy and markets. High oil prices are pushing up imported inflation, increasing corporate costs and financing pressures, and testing the resilience of the labor market. Meanwhile, the delay in interest rate cuts will prolong the high-interest-rate environment, putting additional pressure on emerging markets and stock markets. While mainstream Wall Street opinion still favors two rate cuts, investment banks such as Morgan Stanley have shifted their stance cautiously, highlighting a significant increase in policy uncertainty.
To visually illustrate the differing opinions among investment banks, the following is a comparison table of the latest Federal Reserve interest rate cut paths:

Editor's Summary : The Iranian conflict has directly embedded the risk of oil price inflation into the Federal Reserve's decision-making framework, and the collective postponement of interest rate cuts by investment banks reflects the market's repricing of the policy path. In the short term, a high-interest-rate environment will remain dominant, while the long-term trend depends on the easing of the conflict and the speed of the decline in oil prices. Investors and businesses need to closely monitor the Federal Reserve meeting minutes, oil price dynamics, and the latest reports from investment banks.

Frequently Asked Questions
1. Why did Morgan Stanley suddenly postpone its first rate cut from June to September?
Amid the Middle East conflict, the Federal Reserve issued an inflation warning, with Powell explicitly stating that rising energy prices would push up short-term inflation, the scope of which remained unclear. Morgan Stanley strategists believe this cautious stance means that interest rate cuts must be postponed to avoid repeating past instances of runaway inflation. Following adjustments by Goldman Sachs and Barclays, this reflects the consensus among investment banks that oil prices will remain high.

2. Why is there a discrepancy between the Fed's dot plot, which only shows one rate cut by the end of the year, and investment banks' expectations of two?
Federal Reserve policymakers' latest forecasts are conservative, lowering it by only 25 basis points, reflecting heightened vigilance regarding the uncertainty of the conflict with Iran. Wall Street investment banks remain optimistic about a second round of easing, primarily based on the assumption that a second surge in oil prices could lead to a weakening economy and labor market, forcing the Fed to increase its easing measures. Morgan Stanley specifically emphasized the risk scenario of a "late but potentially larger rate cut."

3. How exactly does the conflict with Iran amplify the upside risk to the Federal Reserve's inflation?
The conflict caused oil prices to surge, directly pushing up energy costs and significantly increasing overall inflationary pressures in the short term. Powell emphasized that "it is too early to judge the scope and duration of the impact," which made the Federal Reserve reluctant to ease monetary policy prematurely. Investment banks have collectively postponed the timing of the rate cut, with the market pricing in a 65% probability of the first rate cut in September. While the market still prices two rate cuts for the year, it faces downward pressure.

4. If oil prices surge a second time, how will the interest rate cut path change?
Morgan Stanley explicitly points out that this could lead to weaker economic activity and the labor market, prompting the Federal Reserve to cut interest rates, but later and by a larger margin. Conversely, if rate cuts come too late or not at all, it becomes the main risk. This creates a two-way scenario: a de-escalation of the conflict leads to earlier rate cuts, while an escalation of the conflict leads to more aggressive but delayed easing.