I harbor — how should I put this? — “reservations” about the usefulness of sell-side Fed forecasts.

In fact, I harbor reservations about all sell-side forecasts. And just macro-market forecasts in general, regardless of who’s making them.

A long time ago, in a galaxy far, far away, Wall Street research wasn’t news. It still isn’t on any regular definition of the word “news,” but it’s routinely newsified, usually to fill up space and particularly on days when other news is in relatively short supply. This is one of those days.

The median 2024 marker in the Fed’s dot plot survived the March SEP refresh intact, which is to say the 2024 dot still tipped 75bps worth of easing this year, the same as it did in December. Between the March meeting and the May gathering traders aggressively faded that 75bps in light of inflation overshoots and generally robust US macro performance. Notwithstanding (very) recent evidence of macro cooling, the median marker for this year will almost surely move up in the June dot plot to reflect 50bps instead of 75bps.

It’s that likelihood which makes Morgan Stanley’s determination to stick with a forecast for three quarter-point cuts marginally notable.

“We were early to call for a temporary [inflation] re-acceleration in Q1, which helped us stay firmly planted in the view that the Fed would not cut before the middle of the year even as market pricing piled into rate cuts starting in March,” the bank’s Ellen Zentner wrote, in an update, before noting that “the strength of the upswing” in Q1 was “even more than we had anticipated.”

But Zentner, who’s a fairly big name as these names (sell-side economists) go, said she still sees disinflation ahead.

As the figure above shows, Morgan Stanley’s house calls sees “sequential rates broadly aligned with the Fed’s 2% inflation target by the end of the year.”

Jerome Powell, Zentner went on, “seems to agree with the view that inflation will come down,” notwithstanding the Fed chair’s admission that inflation in Q1 was disappointingly warm.

She laid out “the roadmap” for a September cut. That road goes through core PCE prints that average 0.2% over the next four months and a deceleration in the three-month moving average for the NFP headline to 213,000 by September.

If, instead, core price growth averages 0.3% between now and the September policy gathering and job gains stay above 200,000/month, Powell won’t likely cut until November, Morgan Stanley suggested.

As far as a return to rate hikes, Zentner said the bar’s high. “We would need to see inflation prints that make the Fed think they are not restrictive enough,” she wrote.

Do note: Zentner hasn’t given up entirely on a cut in July. “We still see a path to cut earlier than September,” she said. “But core PCE inflation will need to sequentially surprise to the downside and the unemployment rate to surprise to the upside.”

Assuming a September start, the Fed would need to cut for three meetings in a row to get to Zentner’s 75bps forecast.