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Morgan Stanley analysts suggest that the Fed’s latest decision to pause on rate hikes was interrupted by markets as if they are going to stop hiking the rates for now, and it acted as a key point for investors.

Key Quotes

“Most investors don’t expect the Fed to hike again this year. Expectations for further rate increases, as measured in the futures market, have fallen to near zero through the middle of 2020. However, the Fed could easily shift back to a more hawkish policy tilt later this year.”

“Expect decent U.S. economic growth to continue, and inflation may even perk up””thanks to the strong job market. That would give policymakers a reason to raise rates, potentially as early as their June meeting and again in Dec.”

“Fed doesn’t necessarily want to slow growth, but it would like to get interest rates, still historically low, to a more normal level before we reach the end of the current business cycle.”

Bottom Line: Investors should be prepared for market volatility to return if the Fed starts to signal that it may resume raising interest rates.”