Economy does not warrant a 50 basis point rate cut in September, says Morgan Stanley's Michael Gapen

Economic Outlook - The Federal Reserve is expected to recalibrate its stance due to shifting risks towards a weaker labor market, suggesting that restrictive policy is not justified [3][12] - There is a consensus that a series of rate cuts, potentially totaling 75 to 100 basis points, is warranted by the current economic conditions, particularly the weak labor market data [4][7][5] Labor Market Analysis - The labor market is showing signs of weakness, with job creation stagnating outside of the healthcare sector, prompting concerns about broader economic implications [5][6] - The Fed aims to preempt further labor market deterioration by moving towards a neutral policy stance [6][12] Tariff Impact - Companies are adjusting to higher tariff rates by absorbing costs rather than increasing hiring, which contributes to labor market weakness [7][8] - The anticipated economic stimulus from tax cuts is expected to materialize in the future, but is not currently impacting the economy [8] Federal Reserve's Strategy - The Fed is not advocating for an easy monetary policy but rather seeks to transition from a restrictive stance to a neutral one to better respond to economic developments [12][13] - The timing of the Fed's actions is critical, as immediate adjustments are necessary to sustain economic expansion into 2026 [9]