July 18, 2016•Update: July 18, 2016
By Ovunc Kutlu
NEW YORK
The Federal Reserve will not increase its benchmark interest rate until 2018 due to uncertainties and risks against the U.S. and global economy, according to Morgan Stanley.
The financial services company pointed to "heightened uncertainties around the global outlook", and stressed that financial conditions has to remain "neutral-to-accommodative" to support growth.
"For that scenario to hold, the Fed will need to remain on the sidelines," Morgan Stanley said in its report, US Economics Summer Outlook, released late Sunday.
The Fed increased its interest rate last December for the first time in almost a decade. Although the markets and analysts anticipated four rate hikes this year, the projection was first lowered to two, and then to one, after most economic data weaker than expected.
Morgan Stanley argued that the U.S. economy is slowing, inflation is low -- far away from the Fed's 2 percent target -- and added "inflation expectations have fallen precipitously.
"Is there anything in this description of current conditions that would inform policymakers further rate hikes are warranted? No," it emphasized.
As a result, Morgan Stanley said it has taken all rate hikes off the table for the remained of the year and next.
"We have removed the one hike we previously expected in December this year, as well as the two hikes we had penciled in for 2017," it noted.
The Fed's next interest rate decision will be announced next Wednesday after its two-day July meeting.
