LIVE MARKETS-A dovish hold? What to expect from the Fed

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

A DOVISH HOLD? WHAT TO EXPECT FROM THE FED

The Federal Reserve may strike a dovish tone at its monetary policy meeting next week, even as it is widely expected to keep rates on hold, according to Morgan Stanley.

Recent data showing a stabilizing labor market likely justifies a pause, but the potential for disinflation later this year means the U.S. central bank will maintain an easing bias, the bank’s chief U.S. economist Michael Gapen and other analysts said in a report.

“The key question at this meeting will be how Powell communicates the pause: is it a "dovish hold" in which he continues to emphasize that the outlook supports further rate cuts, or will Powell signal a more durable pause? We expect the former,” they said.

Morgan Stanley expects the Fed’s statement to maintain the following language – “in considering the extent and timing of additional adjustments to the target range” – which the bank says implies an easing bias in line with the median policy path in the Summary of Economic Projections.

Policymaker projections issued after the Fed’s December meeting showed a median expectation for a single quarter-percentage-point cut this year, though it was accompanied by a wide range of estimates that starkly illustrated the depth of disagreement about where to take monetary policy in 2026.

Fed funds futures traders are pricing in 43 basis points of cuts by year-end, implying expectations of two 25-basis-point rate reductions.

(Karen Brettell)

EARLIER ON LIVE MARKETS:

THE GOOD, THE BAD, AND THE UGLY: FLASH PMI, UMICH, AND A LATE-TO-THE-PARTY LEI CLICK HERE

US STOCKS MIXED EARLY FRIDAY, BUT ON PACE FOR WEEKLY DIPS CLICK HERE

BREWERY SHARES MAY GET THEIR BEST ASSIST YET FROM FIFA WORLD CUP THIRST CLICK HERE

S&P 500 ENERGY SECTOR STOKED FOR A STRONG 2026? CLICK HERE

UK RETAIL SALES REBOUND IN DECEMBER, BUT OUTLOOK FRAGILE CLICK HERE

EARNINGS CAN SHIELD EQUITIES FROM GEOPOLITICAL NOISE CLICK HERE

EUROPE'S BANK BUYBACK BOOST FADING - UBS CLICK HERE

SOFT END TO HECTIC WEEK CLICK HERE

EUROPE BEFORE THE BELL: FUTURES LOWER, STOCKS SET FOR WEEKLY FALL CLICK HERE

TRUMP'S ARCTIC PANTOMIME CHILLS THE DOLLAR CLICK HERE