Market expectations for interest rate increases have risen sharply following the Federal Reserve's policy meeting, with Morgan Stanley shifting its forecast to anticipate quarter-point hikes in both September and December. However, Standard Chartered remains steadfast in its view that the central bank will hold rates steady this year.

Several major investment banks, including Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank, are all predicting that the Fed will implement a rate increase this week. The economists at Morgan Stanley have revised their policy outlook, now expecting the Federal Reserve to raise rates by 25 basis points at each of its September and December meetings. This marks a reversal from the firm's August stance, which projected no rate changes this year followed by two quarter-point cuts in 2025.

The Morgan Stanley report also notes that when the Fed decides to act, it rarely does so just once, and it anticipates a pause in tightening after December as inflation shows signs of cooling. Standard Chartered, in contrast, argues that the Fed should refrain from hiking this week, insisting that holding rates unchanged is the appropriate course of action. The bank maintains its call for no policy adjustment, stating that the correct decision is to wait until the noise from tariffs and data revisions subsides. It warns, however, that remaining on hold carries notable risks, potentially impacting the long end of the Treasury yield curve and the US dollar. Standard Chartered also suggests that core inflation readings may be overstated, while trade tariffs are creating a significant, albeit still uncertain, upward pressure on core PCE inflation.