01:55 PM EDT, 08/18/2025 (MT Newswires) -- The Federal Reserve is likely to keep its benchmark lending rate unchanged this year, but weaker jobs data for August may tip the scales toward a policy easing next month, Morgan Stanley said in a Monday note.

The investment firm's prediction for the US central bank to stay put comes despite last week's consumer inflation data showing a slowdown in price increases in July on a sequential basis.

The Fed is widely expected to cut its benchmark lending rate by 25 basis points in September, although the probability dropped to 83% on Monday from 85% on Friday, according to the CME FedWatch tool. The odds of another pause rose to about 17% from nearly 15%.

"Our baseline call has been that the Fed will remain on hold this year, and last week's CPI print has not changed that view," Morgan Stanley Chief Global Economist Seth Carpenter wrote. "As we have noted, average tariff rates are still ramping up given the implementation delays, and so their cumulative effect on prices could be more lagged."

The July inflation report showed that prices of goods remained firm but didn't pick up, while services showed acceleration, Carpenter said.

Jobs data released at the start of the month showed that the world's biggest economy added fewer jobs than projected in July, while gains in the previous two months were revised sharply lower, suggesting that labor market conditions were weakening.

"After the July US employment and CPI reports, the bar for the Fed to stay on hold in September is clearly higher," Carpenter said.

But Morgan Stanley acknowledged risks to its call, especially stemming from the nonfarm payrolls report for August that's due on Sept. 5.

If that report indicates "a sharp drop-off in the hiring pace, then the Fed could take the view that the labor market is much weaker than anticipated, and restart easing," Carpenter said.

On the other hand, a "solid" employment report with a sequential acceleration in payrolls could allow the Fed to dismiss concerns about the labor market, Carpenter said.

Federal Reserve Chair Jerome Powell is due to speak on Friday in Jackson Hole, Wyoming. Market participants will be watching Powell's comments for any hints on a September rate cut.

Last week, Kansas City Fed President Jeffrey Schmid said the US central bank should maintain its monetary policy for now as inflation remains "too high," voicing disagreement with governors Michelle Bowman and Christopher Waller who have called for rate cuts.