Executive Summary
Morgan Stanley's Chief US Economist sees the Federal Reserve walking into a policy trap in 2026. The Fed is cutting rates by 75 basis points through mid-2026 as 'insurance' against labor market weakness, bringing the target range to 3-3.25%. But this insurance comes with a price: core inflation staying at 2.6% through 2026, well above the Fed's 2% target. The economist explicitly warns that if the economy picks up steam, 'the Fed may need to take back the risk management cuts it's putting in now...
Key Investment Opportunity
Fed Policy Error Positioning
Position for potential Fed policy reversal as insurance cuts collide with accelerating growth in H2 2026
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