- Morgan Stanley forecasts no Fed interest rate cuts in 2025.
- Cryptocurrency markets face liquidity constraints with high rates.
- Risk assets subdued amid ongoing interest rate expectations.
Morgan Stanley, led by Chief U.S. Economist Michael Gapen, predicts no U.S. Federal Reserve interest rate cuts in 2025, affecting cryptocurrency markets and economic strategies.
This forecast could restrict risk appetite, impact BTC and ETH values, and influence global market liquidity in the absence of interest rate cuts.
Fed’s Rate Decision and Market Implications
Morgan Stanley, under the leadership of Michael Gapen, forecasts that no interest cuts are expected from the Federal Reserve in 2025. This aligns with their hawkish stance, diverging from the broader market anticipation for rate adjustments. Michael Gapen, with a team including Matt Hornbach, provides a detailed outlook, asserting no rate cuts will occur this year. Their focus remains on a potential hawkish shift in 2026 with possible rate adjustments.
“Gapen isn’t budging on his forecast from earlier this year. His note not only says it is unlikely that there will be a cut in July or September, but also predicts there won’t be a single rate cut for the rest of 2025. Instead, Gapen is forecasting a very hawkish 2026 with seven rate cuts.” – Michael Gapen, Chief U.S. Economist, Morgan Stanley
The decision impacts cryptocurrency markets, specifically affecting BTC, ETH, and other major digital assets. Liquidity remains constrained as the opportunity cost of holding non-yielding assets rises, a characteristic of high-rate environments. Beyond crypto, broader financial markets witness constrained risk asset allocations, inducing a cautious investment approach. Institutional investors remain restrained as monetary policies emphasize maintaining liquidity conditions.
Market participants anticipate continued tight financial conditions affecting crypto trading volumes and liquidity. The implications extend to exchange activities and derivatives, influencing major asset price stability. Historical trends suggest prolonged high U.S. rates lead to declines in BTC and ETH, reducing TVL across DeFi. Analyst insights highlight potential impacts across governance tokens, which have shown vulnerability to U.S. macroeconomic policies.
