Morgan Stanley warns that if the unemployment rate falls below 4%, the Federal Reserve may be forced to raise interest rates According to BlockBeats, on June 27th, Morgan Stanley maintained its baseline forecast for the Federal Reserve to keep interest rates unchanged for the year, but warned that if the unemployment rate falls below 4% or inflation remains high, this judgment will be forced to shift towards interest rate hikes. Analyst Michael Gapen pointed out in a client report that data since the June FOMC meeting has made the bank "somewhat reassured" about the "no rate hike" baseline - oil prices have fallen after the signing of the US Iran memorandum of understanding, and it is expected that the tariff transmission effect is peaking. Morgan Stanley predicts overall and core PCE inflation for the fourth quarter to be 3.2% and 3.0%, respectively, far below the median expectations of FOMC participants. In terms of the labor market, Da Mo expects to add 50000 to 60000 new jobs per month in the summer, which is enough to keep the unemployment rate roughly flat. However, Gapen warns that if the unemployment rate falls below 4.0%, the Federal Reserve may consider the risk of labor market overheating sufficient to support a rate hike; If the monthly core inflation rate continues to remain at 0.3% or above, or if the Middle East conflict escalates again, the viewpoint will also be reassessed. At the time of this assessment, Brent crude oil had fallen to around $72.6, and the market was closely monitoring subsequent employment and inflation data to calibrate policy expectations for the Federal Reserve under the Bush administration. [Original link]