Morgan Stanley delays interest rate cut expectations, changing from January to June. What does this imply behind the scenes?

Morgan Stanley suddenly adjusted its forecast for the Fed’s rate cuts in 2026. According to the latest news, the bank expects the Federal Reserve to cut interest rates by 25 basis points in June and September, a significant contrast to previous predictions of rate cuts in January and April. This is not an isolated phenomenon—Citibank also revised its expectations at the same time, changing from rate cuts in January, March, and September to March, July, and September. Behind this wave of expectation adjustments reflects a major shift in market judgment on the outlook for the US economy and inflation.

Why Did Rate Cut Expectations Suddenly Get Pushed Back?

Inflationary Pressures Have Not Fully Subsided

Federal Reserve Board member Bostic recently stated clearly that inflation remains the main challenge facing the US economy, with current inflation levels well above the Fed’s 2% target. This statement implies that the Fed needs to see more evidence of inflation retreat before cutting rates. Meanwhile, December’s non-farm payroll data presents a contradictory signal: only 256,000 new jobs were added, far below the expected 600,000, but the unemployment rate unexpectedly fell from the forecasted 4.5% to 4.4%.

This contradiction has left the market in a dilemma. On one hand, lower-than-expected job growth usually raises expectations for rate cuts; on the other hand, the decline in unemployment indicates that the labor market remains tight, which sustains wage pressures and inflation expectations. Adjustments by institutions like Morgan Stanley are cautious choices made amid this uncertainty.

The Economy Is More Resilient Than Expected

Conversely, the US economy has shown surprising resilience. The Atlanta Fed’s GDPNow model estimates that US GDP growth in Q4 2025 will be 5.1%, a quite strong figure. Robust economic growth means the Fed does not need to rush to cut rates to stimulate the economy and can adopt a more cautious stance.

Comparison of Institutional Expectations

From the comparison, it’s clear that although the specific timing varies, all institutions are pushing back their rate cut expectations. This indicates that it’s not just a single institution’s judgment but a shift in market consensus.

Impact Pathways on the Crypto Market

Short-term Liquidity Pressure

Delayed rate cuts mean the Fed will keep interest rates high for a longer period. A high-interest environment raises the financing costs for risk assets, putting pressure on assets like Bitcoin and Ethereum. Recent data shows that BTC ETF fund flows have become volatile—after a net inflow of over $1 billion in the first two days of the year, there was a subsequent outflow of $1.128 billion over the next three days. This instability in capital flows reflects the market’s sensitive reaction to changing rate cut expectations.

Long-term Allocation Logic Remains Unchanged

It’s important to note that although Morgan Stanley has delayed its rate cut expectations, it is actively applying for spot ETFs for Bitcoin, Solana, and Ethereum. This seemingly contradictory signal actually reflects institutions’ long-term optimism about crypto assets. ETF applications are not short-term speculation but preparations for long-term allocation. Delayed rate cuts may impact short-term gains but do not change the status of crypto assets as “digital gold” and long-term asset allocation tools.

Key Variable in Market Sentiment

Changes in rate cut expectations have a significant impact on market sentiment. When expectations are pushed back, markets often undergo a period of adjustment. But from another perspective, delaying rate cuts essentially reflects that the US economy does not need emergency measures—this is a positive signal for long-term economic health and asset prices. Crypto market participants need to adapt to the new rhythm of “late rate cuts,” rather than be scared off by short-term volatility.

Summary

Morgan Stanley’s adjustment of rate cut expectations may seem bearish on the surface—delaying cuts means liquidity release will be extended. But in essence, it reflects the objective reality that the US economy is more resilient than expected and that inflation pressures still need attention. For the crypto market, the short term may face pressure from a high-interest-rate environment, but in the long run, strong economic fundamentals actually support institutional allocations to crypto assets. The continued application for spot ETFs for BTC, SOL, ETH, etc., by giants like Morgan Stanley is based on this long-term optimism. Investors need to understand that: delaying rate cuts is not the end of the market, but a new beginning.