Morgan Stanley On Fed: 'Resolve Stirred, Not Shaken'

Morgan Stanley released a report this week with its outlook for the Federal Reserve’s first interest rate hike. Analysts believe that the Fed’s resolve to raise interest rates in 2015 remains strong, despite weak economic numbers to begin the year.

Rough Start

Economic growth in the U.S. has been much weaker so far in 2015 than many economists anticipated several months ago. In the minutes from their most recent meeting In April, the FOMC discussed several reasons for the slow start to the year, including bad weather, the port strike, energy capex cuts, the strong dollar’s negative impact on exports and seasonal measurement bias.

Related Link: FOMC Minutes Text

Weakness Only Temporary?

Morgan Stanley analysts share the widely-held belief that early-2015 economic weakness is temporary. FOMC members seemed to share that sentiment as well in their April meeting, and the general consensus seemed to be that moderate growth would return to the U.S. economy in the second half of the year.

Morgan Stanley emphasizes the importance of Q2 economic numbers in determining whether Q1 weakness is a thing of the past or if “something more sinister may be peeking round the corner.”

First Rate Hike

According to the report, Morgan Stanley believes that the Fed’s most recent rhetoric suggests that members still intend to raise rates in 2015. However, at this point a June rate hike seems unlikely.

“We continue to expect the first hike to come at the December meeting, followed by a pause as policymakers assess its effect in financial conditions,” analysts explain.

Fed Chair Janet Yellen will be speaking on the U.S. economic outlook on May 22.