Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross Asset

Strategy from Morgan Stanley. Along with my colleagues bringing a variety of

perspectives, I'll be talking about trends across the global investment landscape and how we put those different ideas together.

It's Friday, June 21st at 2 PM Greenwich, meantime.

Morgan Stanley's economics team now expects the Federal Reserve to cut interest rates by half a percent as soon as their next meeting on July 31st.

This is a significant change to our expectations and is based partly on commentary from Fed Chair Powell at yesterday's meeting of the

Central Bank where he appeared to make clear that they had contemplated lower

rates. But it's also based on our concerns over incoming data including a very

sharp deterioration in the regular survey of

business conditions among Morgan Stanley Equity Analysts, the Morgan Stanley

Business Conditions Index. My colleague Mike Wilson discussed this index and

its decline on this program earlier in the week.

Would a 50-basis point cut be unusual? Not exactly. The Federal Reserve usually lowers rates much faster than it raises them,

leading to an old bond market joke that the Fed takes

the escalator on the way up, but an elevator on the way down.

While the Fed hasn't raised interest rates by 50 basis points since 1995, it cut by this amount eight times in 2001 and moved in such

increments or larger in both 2007 and 2008. Those dates should raise a few eyebrows.

Yesterday's reaction to the Fed was once again to cheer,

with both stocks and bonds rising as investors looked to the 1995

and 1998 experience as a template for lower interest rates leading to better market performance.

But there is an important wrinkle here.

In 1995 and 1998, conditions allowed the Fed to move gradually, reducing rates in small 25 basis point increments.

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