Fed needs to cut by 100bp just to get to neutral, not their job to push back equity rally

<p>I posted earlier on analysts at Morgan Stanley's Federal Open Market Committee (FOMC) forecast:</p><ul><li><a href="https://www.forexlive.com/centralbank/morgan-stanley-predict-the-federal-reserve-may-not-cut-interest-rates-until-june-20231220/" target="_blank" rel="follow" data-article-link="true">Morgan Stanley predict the Federal Reserve may not cut interest rates until June</a></li></ul><p>Separately, the portfolio solutions CIO at Morgan Stanley Investment Management was interviewed on bbgt TV on Wednesday, and he leans towards very aggressive cuts indeed, saying the Fed would like to get to a real yield (nominal Fed Funds rate minus inflation) around 1.5% as its neutral level:</p><ul><li>

so if we
look at nominal Fed Funds today at
5.5% and let's say US
inflation is at
3% that means real
policy rates are at
2.5% which means that
the FED could cut a
100 basis points
just to get to their
neutral level </li><li>there's like six rate cuts priced in but
remember 100 basis
points of those rate cuts is really just
getting to neutral, and they don't
start really easing
until they start
doing more than 100</li></ul><p>He goes on to discuss the Fed's attitude to the equity rally:</p><ul><li>if the
markets are rallying
that's okay with the Fed, the Fed doesn't
have to push back on
on a rally because
they don't like a
rally that's not their
job

effectively what
they're saying is
can we get this
rally and can inflation
also stay low

and if the answer is
yes
to both then they
don't care if if the
market continues to rally </li></ul><p>Full interview</p>

This article was written by Eamonn Sheridan at www.forexlive.com.