Fed Inflation Expectations Look High To Us

The report argues that recent hawkish FOMC signals, specifically in the Summary of Economic Projections (SEP), are over-pessimistic. Morgan Stanley maintains that slowing inflation will allow the Fed to remain on hold through the end of 2026.

Key Takeaways

• 1.The FOMC statement was dramatically scaled back, stripping out forward-looking language.
• 2.The SEP's inflation forecasts may have been submitted before the reopening of the Strait of Hormuz and appear overdone.
• 3.The underlying inflation trajectory is slower than the Fed's, supporting a hold through year-end.

Table of Contents

• Fed inflation expectations look high to us
• Key Takeaways
• FOMC June meeting: hawkish, less guidance, and reform underway
• The SEP: a hawkish signal—but perhaps overdone
• Oil Tracker: US ending stocks of crude oil edge lower amid increased exports and unchanged production
• Financial Conditions: A near-reversal following the April 7 ceasefire
• The effective tariff rate, tariff receipts and refunds
• 2Q GDP Tracking at 3.0%
• Data review & preview
• US economic outlook
• US Outlook Scenarios

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