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BlockBeats News, June 27th - Morgan Stanley maintained its baseline prediction that the Fed will keep interest rates unchanged within the year, but warned that if the unemployment rate falls below 4% or if inflation remains high, this assessment will be forced to shift towards a rate hike. Analyst Michael Gapen pointed out in a client report that the data since the June FOMC meeting has made the bank "somewhat reassured" about the "no rate hike" baseline - oil prices have fallen after the US-Iran memorandum of understanding was signed, and it is expected that the tariff pass-through effect is peaking. Morgan Stanley predicts that overall and core PCE inflation in the fourth quarter will be 3.2% and 3.0%, respectively, well below the median expectations of FOMC participants. In terms of the labor market, Morgan Stanley expects a monthly addition of 50,000 to 60,000 jobs in the summer, enough to keep the unemployment rate broadly stable. However, Gapen warned that if the unemployment rate falls below 4.0%, the Fed may consider the labor market overheating risk enough to support a rate hike; if the monthly core inflation rate continues to stay at 0.3% or above, or if the Middle East conflict escalates again, the view will also be reassessed. At the time of this assessment, Brent crude oil had fallen to around $72.6, and the market is closely watching the upcoming employment and inflation data to calibrate expectations for the Fed's policy under Chairman Powell.

Earlier, oil prices fell to their lowest levels since the outbreak of the Iran war, alleviating inflation concerns. The yield on Germany's 10-year government bonds fell by 1 basis point to 2.848%, marking the lowest level since mid-March. It has dropped by about 13 basis points this week and is likely to post the largest weekly decline since March 2025, as oil prices plummeted with the resumption of shipping in the Strait of Hormuz. Expand

The level below $76 per barrel appears relatively mild, and calls from hawkish European Central Bank officials for further action are starting to sound hollow to market participants.