Morgan Stanley Explains Why Shape Of The Yield Curve Is More Important Than Timing Of Fed Cuts

By Vishwanath Tirupattur

The Shape of Things to Yield

With the much-anticipated Fed meeting now behind us, market attention has shifted to the future trajectory of monetary policy and what it means for the yield curve. It’s clear to us that more rate cuts are coming, given that the Fed sees more downside risk to employment and less upside risk to inflation, along with a dot plot that projects more cuts. Our economists expect 25bp cuts at the next three Fed meetings – October, December, and January – followed by a pause and two more cuts in April and July next year. Our macro strategists continue to recommend that investors position for lower Treasury yields and a steeper Treasury curve.