Rate-cut hopes ebb as global brokerages brace for longer Fed restraint

By Rashika Singh

April 30 (Reuters) - Global ‌brokerages have gradually ​stepped ​back from earlier expectations of two U.S. interest rate cuts in 2026, with forecasts now split between some easing and none due to ‌lingering inflation risks and cautious policymakers.

Morgan Stanley became the latest brokerage ⁠to drop expectations for rate cuts this year, retreating from earlier expectations of two quarter-point reductions, after ‌the central bank's decision to ‌maintain its policy rates on Wednesday in its most sharply divided decision since 1992.

The meeting was also the last to be chaired by Jerome Powell, with ​Kevin Warsh - U.S. President Donald Trump's nominee - expected to be designated as his successor.

At least eight brokerages, including J.P. Morgan and HSBC, bet on no rate ⁠cuts this year. Meanwhile, eight brokerages expect between 25 and 75 basis points (bps) of easing this year, with the ​majority of them expecting two 25 bps cuts.

The shift underscores a marked change from early-year expectations, when major brokerages including Goldman ​Sachs and Morgan Stanley broadly anticipated two rate ‌cuts, starting as early as June.

"Inflation remains above the Fed's 2% target, and recent economic data point to continued strength in growth ⁠and labor markets, reducing the urgency for further policy easing," Morgan Stanley said in a note on Wednesday.

Goldman Sachs and J.P. Morgan also emphasized the growing division within the Federal ⁠Open Market Committee, with dissents indicating unease about prematurely signaling policy easing. Both brokerages suggested rates ​are likely to stay on hold into the second half of the year unless inflation shows clear, sustained progress.

While most brokerages still see easing eventually, many now stress timing risks rather than ‌certainty.

Traders are now pricing in roughly a 40.5% probability of a rate hike by April 2027, up from about 8% ‌before the Fed announced its decision, according to CME Fedwatch tool.

"We see risks to our ⁠baseline view as skewed toward delayed ‌rate cuts," Barclays said, which ​expects one 25 bps cut in September.

(Reporting by Kanishka Ajmera and Rashika Singh in Bengaluru; Editing by Sonia Cheema, Harikrishnan Nair and ‌Vijay Kishore)

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