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Even if the Fed cuts interest rates this summer, it may be too late to stop a recession

Federal Reserve Board Chairman Jerome Powell will testify before the Senate Committee on Banking, Housing and Urban Affairs on Capitol Hill, Washington, DC on February 26, 2019.

Jim Watson | AFP | Getty Images

Even if the Federal Reserve does what the market wants this summer and lowers interest rates, Morgan Stanley says things may have gone too far.

"Fed cuts could come too late," Morgan Stanley's stock strategist Michael Wilson said in a statement to customers on Monday. "The Fed could cut back in July, but may not stop the slowdown / recession."

The economy is already exposed to some "very real macro-risks", including weak employment data, low inflation and escalating trade tensions, Wilson said.

The market expects the Fed to cut interest rates by July in response to divers bond yields, volatile stock markets and some signs of weakness. On Friday, payrolls in May were much lower than expected and markets rallied in hopes that the Fed would start mining in July.

Coupled with "declining inflation and inability to reach its 2 percent target" With trade tensions on the back of confidence, the Fed's interest rate cut will not halt a weakening economy, "Wilson said." [1

9659002] Investors should remain defensive despite a more cautious Federal Reserve, Wilson said.

"Investors' enthusiasm for the idea of ​​a simpler Fed policy is understandable," Wilson said. "However, if the Fed withdraws out of concern that we are entering a real unemployment cycle, we should believe such a decline should not be bought in. As long as the employment picture does not clear, we should believe that the rally on Friday will fade and investors should continue to defend their portfolios defensively. "

Wilson said he" keeps a watchful eye on expensive growth stocks that are at greater risk of missing earnings estimates due to these very real macroeconomic risks. "

– With reports by CNBC Michael Bloom

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