Investing.com -- Morgan Stanley analysts now expect the Federal Reserve to hold interest rates steady until early 2027, citing hawkish economic data and a shift in the central bank's stance toward neutrality.

The April Federal Open Market Committee meeting showed the Fed moving away from an easing bias, with policymakers raising the bar for future rate cuts. The firm noted that solid growth, resilient labor markets, and elevated inflation during the first quarter support an extended pause in monetary policy adjustments.

Core inflation is expected to cool before the Fed proceeds with cuts, likely once the year-over-year pace of core Personal Consumption Expenditures drifts lower in the first quarter of 2027.

The U.S. economy grew 2.0% in the first quarter of 2026, with firm demand and stable labor markets underpinning the Fed's patient approach. Non-residential investment surged during the period, with growth extending beyond artificial intelligence-related spending.

The Fed's current stance reflects policymakers' desire to see sustained disinflation before implementing rate reductions.