Morgan Stanley expects the Federal Reserve to raise interest rates twice this year, and the European Central Bank to hike rates again.

Due to persistent inflationary pressures, Morgan Stanley has joined other major Wall Street banks in adopting a more hawkish outlook on Federal Reserve rates, predicting that the Fed will raise interest rates later this year and that the European Central Bank will also hike rates again. These forecasts come as the Federal Reserve and the Bank of Japan are set to make policy decisions this week, while the European Central Bank resumed its tightening cycle a few days ago, keeping global markets focused on the interest rate outlook. Morgan Stanley expects the Federal Reserve to raise interest rates by 25 basis points at its September 15-16 meeting and another 25 basis points in December, as recent inflation data has exceeded expectations. In a report released on Monday, the brokerage said that the disinflation process is “slower and less convincing than policymakers might require,” prompting its forecast for two rate hikes this year. The bank stated: “We see arguments for both hiking and holding steady, but signs of second-round effects from energy prices, robust demand linked to artificial intelligence-related investments, a possibly temporarily higher neutral rate, and concerns about credibility mean that the balance of risks now tilts toward a slightly more restrictive policy.”