At Senad Karaahmetovic
Economists of Morgan Stanley they believe the Fed will decide to raise its key rate by 25 basis points next Wednesday, as it continues to struggle against substantial inflationary pressures and a robust labor market.
“The Fed has little incentive to surprise markets in this volatile environment and we think it will be ready to adjust rates and fiscal paths if conditions warrant,” MS wrote in a note to clients on Friday.
The investment bank also highlighted comments from analysts at broker Banks, who see “a significant increase in funding costs, which will lead to tighter lending standards, slower loan growth and more broader lending.”
“We already expected a significant slowdown in growth and job growth in the coming months, and the prospect of a substantial tightening in credit conditions increases the risk that a soft landing turns into a harder one,” they added. .
Analysis from Morgan Stanley (NYSE:) shows that a permanent +10 percentage point tightening of credit standards for C&I loans leads to a 35 percentage point increase in credit over the next two years.
“Despite recent positive data, job growth could slow down rapidly as a result.”
Experts are urging investors to monitor initial weekly requests, but also warn that it will be some time before tighter lending conditions show up in the macro data.
“The recessions came more than half a year after the start of a sustained increase in jobless claims,” they conclude.