Why the Fed’s 50bp Move Hasn’t Significantly Affected Global Central Banks

Morgan Stanley analysts indicate that the recent 50 basis point rate cut by the Federal Reserve does not represent a significant shift in its overall strategy and is likely to have minimal influence on global central banks.

They point out that the Fed’s decision was made to demonstrate its commitment to addressing inflation risks, with the prevailing expectation being a series of 25 basis point cuts in the near future. According to Fed Chairman Powell, the organization remains optimistic about the health of the economy and the labor market, with further rate reductions contingent on forthcoming data regarding employment and consumer spending.

The Morgan Stanley report highlights that global responses from central banks will still be largely shaped by domestic economic conditions. For instance, Brazil’s central bank recently raised interest rates in response to robust economic growth and a depreciating currency, both of which point to rising inflationary pressures. In contrast, Indonesia’s central bank lowered rates after seeing an appreciation of its currency, which eased inflationary concerns.

These cases illustrate how emerging markets navigate the balance between global financial dynamics and local economic factors.

In developed markets, Morgan Stanley analysts anticipate little immediate reaction to the Fed’s rate adjustment. In Europe, the European Central Bank is likely to maintain a cautious stance, with expectations for another cut in December. The Bank of England, which paused its rate cuts in September due to inflation worries, is expected to resume cuts in November. Similarly, the Bank of Japan is anticipated to maintain its current policies until early 2024.

While the 50 basis point cut from the Fed suggests the possibility of significant shifts in the future, Morgan Stanley emphasizes that it does not indicate a fundamental change in strategy. The easing cycle is still regarded as favorable for risk assets; however, uncertainties persist, especially with the upcoming U.S. election and its implications for forecasts in 2025.