Group 1 - The core viewpoint is that Morgan Stanley anticipates the Federal Reserve will maintain interest rates during the upcoming January FOMC meeting, with a focus on the tone of the statement indicating a dovish pause to soothe the market [1][2] - The Federal Reserve is expected to keep the federal funds rate target range unchanged at 3.50%-3.75%, which is seen as a tactical adjustment rather than a return to a tightening cycle [1][2] - The key for investors lies in the forward guidance, with expectations that the Fed will retain language suggesting consideration for further adjustments, indicating a continued dovish stance [2][9] Group 2 - Jerome Powell is expected to justify the pause by referencing recent strong growth data, stable hiring, and a decrease in the unemployment rate to 4.375% [3] - Despite the Fed's pause on rate cuts, the short-term financing market remains loose, with repo rates normalizing below the interest on reserve balances (IORB), indicating an excess of cash in the system [4] - Morgan Stanley has revised its outlook on the foreign exchange market, now projecting a stronger U.S. economy with an upward adjustment of GDP growth to 2.4% for 2026, while delaying the anticipated rate cuts [5] Group 3 - In the mortgage-backed securities (MBS) sector, the announcement of a $200 billion purchase plan by government-sponsored enterprises (GSEs) has led to a significant narrowing of MBS spreads, prompting a neutral stance from Morgan Stanley [8] - The FOMC statement is expected to upgrade the assessment of economic growth from "moderate" to "robust" and remove references to increased risks in the labor market, reflecting a more positive outlook [9] - The Federal Reserve is projected to maintain a monthly purchase of $40 billion in Treasury bills to manage reserve levels, with expectations that the SOMA account will exceed $600 billion by the end of 2026 [9]