Fed and ECB look set to cut rates in September, Morgan Stanley strategist says

How concerned should owners of US assets be if the administration starts changing the way the Federal Reserve mandate looks? Well, it's certainly, you know, it's a great question because it introduces a real uncertainty and a real shift versus today. You know, you think about where the Fed is today, right? The unemployment rate in the US has been rising. Core inflation has been falling. If you think about under the prior administration or the Trump administration, do we think the president would have been commenting on the Fed and should they be cutting rates in the environment of falling inflation, rising unemployment? I, I would imagine that there, there might have been some commentary there. The, the Biden administration has made no such commentary. So I think you're very much looking at a very different type of communication from from a Trump administration vis a vis the Fed. I think the market, I think with the way the market's most likely though to look at this is through inflation break evens and to believe that to say, look, if you combine a belief that rates should kind of just be lower all else equal from from maybe a Trump administration with tariffs kind of some other factors, tougher immigration restrictions, both of which can be somewhat inflationary. I think the market could trade it as higher breakevens under a second Trump administration. What about the long term yield? Because there have been some concerns about issuance already, even under the Biden administration. If we see Trump's tax breaks extended, the market could again have concerns about how the United States pays for its bills. The 10 year yield, then 4.30 today. Where does it sit down the track? Well, so yeah, that does raise a, a big uncertainty. And again, I, I do think for all this focus on fiscal in the US and Europe, the, the long end has been surprisingly resilient. So maybe that clearly speaks to, there is still a lot of demand at the long end. But I, I'd actually not to, not to pivot too much politically, but I think this also brings the UK into an interesting place because I think the, the dominant narrative is, well, the US might see fiscal expansion under either candidate. France might see fiscal expansion under a variety of outcomes. The the UK may not in the same way. And so I do think that that is where we're a little bit more optimistic on UK duration as we do think the UK could come out of this political year potentially with less loose fiscal policy than than some of the other peers. Fiscal divergent as we start talking about the monetary policy of divergent. Absolutely, absolutely. And how do you think that could matter, just a monetary policy. We've had more data rolling across the tape and the markets been a bit more encouraged this week that perhaps we are going to get those rate cuts. Are you also encouraged? Do you think they're insight? Yes, we we are. So we're more optimistic that both the Fed and the ECB will cut rates in September. And look, I think it's understandable that these central banks don't want to pre commit, they don't want to, they don't want to sound overly complacent about the risks of inflation. But we think, you know the, the data that the ECB will see by September will be inflation continuing to moderate. And I think for the Fed inflation is continuing to fall. We think we'll get it, you know, kind of a .11 core PCE reading month over month, the year over year rates coming down, you're seeing big improvements in a lot of different categories on core inflation, especially the PCE measure the Fed cares about and the labor market is showing signs of slowing. So I think the Fed looking at that, looking at rates that are way above neutral by its own estimate, we think that they will move to cut rates in September.