Morgan Stanley: The U.S. "No Job Productivity Boom" Will Stimulate Further Rate Cuts by the Federal Reserve

Morgan Stanley strategists point out that the U.S. economy may experience a "jobless productivity boom," which will suppress inflation and open the door for more rate cuts by the Federal Reserve.

Data from the U.S. Department of Labor shows that hourly output for all non-farm workers increased by 3.3% year-on-year in the second quarter, a significant improvement from the 1.8% year-on-year decline in the previous quarter. Investors' expectations for the pace of rate cuts by the Federal Reserve next year are more aggressive than the official forecasts. According to the CME FedWatch tool, Federal Reserve officials expect only one rate cut in 2026, but investors believe there is a 72% chance of a rate decrease by the end of the year.