Morgan Stanley: The FED may only lower interest rates once in 2025, and the AI economic growth will only manifest in 2026.

Mike Wilson, Chief Investment Officer at Morgan Stanley, stated in an interview on March 19 that the current volatility in the U.S. stock market stems from the Federal Reserve's ( policy adjustments, government budget cuts, and a slowdown in AI investments. These factors will affect the market trends in the coming months. He believes the market is still in a correction phase, but there may be a turning point in the second half of the year.

FED interest rate cut forecast diminishes, market focuses on the labor market and credit risks.

Morgan Stanley originally predicted that there would be two interest rate cuts this year, but now only expects one. Wilson stated that the FED will determine the timing of the rate cuts based on economic growth, and the employment market is a key indicator.

The current weakness in the job market mainly comes from the government sector, as the White House is laying off workers and cutting budgets. However, if the impact extends to private enterprises, the FED may accelerate the pace of interest rate cuts. He also mentioned that if market credit tightens further, the FED may be forced to intervene, similar to the situation in 2018 when interest rates were cut due to market pressure.

The S&P 500 index stabilized at 5,500 points, with a short-term rebound expected.

Recently, the market has corrected, and the S&P 500 index )S&P 500( dropped to 5,500 points before stabilizing. Wilson believes this is a short-term tradable range, and the market may experience a technical rebound. "Our view is that the market will be more challenging in the first half of this year, and will improve in the second half," he stated.

AI investment growth slows down, corporate capital expenditure affected

Wilson stated that the trend of capital expenditure in the AI industry )Capex( also affects market sentiment. Due to concerns about a slowdown in AI investments at the beginning of this year, large tech companies confirmed in their financial reports that they still plan to invest tens of billions of dollars, but the growth rate has slowed, leading to a cooling of market expectations for AI technology stocks.

"This is part of the market correction. As long as the AI industry does not experience a more severe downturn, the 5,500 points should hold and provide short-term trading opportunities," Wilson stated.

Trump's policies affect the market, investors are paying attention to DOGE and tariffs.

The policy changes of the Trump administration, including the government efficiency department's )DOGE( layoff plan and the uncertainty surrounding tariffs, have also affected the market.

Wilson believes that the market correction is not only due to the uncertainty caused by policy changes, but also related to investors having overly optimistic expectations for economic growth. He emphasized, "The market was overly optimistic about the economic growth in 2024 at the end of last year, and now it must return to reality."

However, he believes that the Trump administration's tax cuts and deregulation may take effect in the second half of the year, shifting market sentiment towards optimism.

The economic growth of AI will only become evident in 2026, and the market will react in advance.

Wilson pointed out that the market will begin to reflect the true economic benefits brought by AI in the second half of 2025 to early 2026, but in the short term, it is still a period of market fluctuations; however, the market may react in advance. He believes that the market is currently in an adjustment phase, and investors should closely monitor the Federal Reserve's ) interest rate cut trends, changes in Trump's policies, and AI investment trends. In summary:

The FED may only cut interest rates once this year, with the labor market and credit pressure being key variables.

The S&P 500 index stabilizes at 5,500 points, with a short-term opportunity for a rebound.

Capital expenditures in the AI industry are slowing, and market expectations for AI stocks need to be adjusted.

The tax cuts and deregulation policies of the Trump administration may bring positive effects in the second half of the year.

The economic benefits of AI are expected to materialize in 2026, but the market is likely to respond earlier.

He emphasized: "Market fluctuations will continue, but there are still trading opportunities in the short term. Investors should patiently wait for a turning point in the second half of the year."

This article Morgan Stanley: The FED may only lower interest rates once in 2025, and AI economic growth will only manifest in 2026. First appeared in Chain News ABMedia.