Investing.com -- Morgan Stanley now expects the U.S. Federal Reserve to begin easing monetary policy later than previously thought, citing a more cautious stance from policymakers following the March Federal Open Market Committee meeting on Wednesday.

The bank told clients in a note that it has shifted its forecast to rate cuts in September and December, compared with its earlier call for June and September. “A cautious Fed means delay,” Morgan Stanley wrote.

The Fed kept rates unchanged and maintained an easing bias, but analysts led by Michael Gapen noted that Chair Jerome Powell’s message made clear that “heightened uncertainty likely means cuts come later.”

“Chair Powell said clear progress on inflation is needed before further normalization begins,” wrote Gapen, warning that higher oil prices have introduced “a new round of tension in the Fed’s dual mandate.”

Morgan Stanley believes Powell offered a balanced tone, addressing both dovish concerns about employment and disinflation as well as hawkish worries about persistent inflation.

The bank highlighted Powell’s remark that “there's really not a lot to do other than watch and see,” as Middle East developments add risk to the outlook.

The firm noted that its rates strategists recommend staying neutral on U.S. Treasury duration, with incoming data volatility creating opportunities. Its FX team added that investors appear “bearish EUR/USD” and under-hedged in traditional safe havens such as the Swiss franc and Japanese yen.

Morgan Stanley cautioned that the biggest risk to its new call is that cuts “come later or not at all,” though a sharp rise in oil prices could accelerate easing if economic activity weakens.