The Global Rate Debate

Summary

Morgan Stanley's chief economists discuss the global rate outlook. The US Fed is expected to stay on hold as inflation declines, though strong demand is a risk. The ECB is likely to hike again in September, with rates still near neutral. The Bank of Japan will normalize slowly with only two more hikes, while China plans fiscal expansion to support growth.

• US inflation is seen peaking and allowing the Fed to remain on hold in 2025.
• Key US disinflation drivers: energy payback, tariff unwinding, shelter.
• ECB is expected to raise rates to 2.5% in September, still neutral territory.
• Higher ECB rates may widen sovereign spreads given upcoming political events.
• BOJ normalization will be gradual, with only two hikes due to weak domestic demand.
• China to use budgeted fiscal space (≈2 trillion RMB) to lift H2 GDP to 4.6%.