Morgan Stanley expects the Fed to keep rates on hold until 2011 in the wake of the sovereign debt crisis in Europe. Their previous estimate was September of this year.
The investment bank said it expected the target rate on fed funds to climb to 2.5 per cent by the end of next year, and forecast the 10-year Treasury yield to be 1 percentage point lower, at 4.5 per cent, by year end. “The European sovereign credit crisis, its threat of contagion beyond Europe, and its effect on inflation expectations is the key reason for these significant changes,” said the research note.
