Summary of Morgan Stanley Global Macro Forum Call Industry Overview - The discussion primarily revolves around the Federal Reserve's monetary policy and its implications for the broader economy and financial markets, particularly focusing on interest rates and the US dollar. Key Points Federal Reserve's Monetary Policy - The Fed is expected to shift from labor market-based rate cuts to inflation-based cuts, with anticipated 25 basis point cuts in June and September 2026, as opposed to earlier predictions for January and April 2026 [59][59][59] - Improved economic momentum and a declining unemployment rate reduce the urgency for near-term cuts aimed at stabilizing the labor market [59][59][59] - Inflation is projected to decelerate towards the 2.0% target, with disinflation expected to begin in Q2 2026 [59][59][59] Interest Rate Market Insights - Current market pricing aligns closely with the economists' probability-weighted path, but there is an expectation that market pricing will dip below the September 2024 lows [59][59][59] - The market-implied trough rate suggests low probabilities for extreme outcomes, indicating a potential shift towards a more dovish monetary policy [59][59][59] US Dollar Outlook - A medium-term outlook suggests USD weakness in 2026, driven by US-RoW rate compression and an increased USD-negative risk premium [59][59][59] - The FX market currently exhibits low investor conviction and volatility, presenting tactical opportunities, particularly with potential pullbacks in AUD and SEK, and rallies in CAD and JPY [59][59][59] Agency MBS Purchase Announcement - The GSEs have added $45 billion in securities since the new director took office, but a proposed $200 billion purchase is significantly larger than projected net issuance for the year [59][59][59] - Mortgages have quickly repriced to reflect this demand, with limited room for further compression in primary rates unless driven by Treasury movements [59][59][59] - Several unresolved questions remain regarding the nature and funding of the proposed purchases, including whether they will be outright or duration-hedged [59][59][59] Additional Insights - The Fed's balance sheet run-off in MBS is projected to be similar to the proposed $200 billion purchase, indicating significant market dynamics at play [59][59][59] - The spread of primary rates to the yield curve shape has limited compression potential, necessitating a Treasury-driven rally for further rate decreases [59][59][59] This summary encapsulates the critical insights from the Morgan Stanley Global Macro Forum, focusing on the Federal Reserve's policy direction, interest rate market expectations, the outlook for the US dollar, and developments in the agency MBS market.

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