Podcast Summary: Thoughts on the Market – "Mapping Global Central Bank Paths"

Date: January 22, 2026
Host: Seth Carpenter (Morgan Stanley Global Chief Economist, Head of Macro Research)
Guests:

• Mike Gapen (Chief US Economist, Morgan Stanley)
• Chetan Aiya (Chief Asia Economist, Morgan Stanley)
• Jens Eisenschmirt (Chief Europe Economist, Morgan Stanley)

Episode Overview

In this episode, Morgan Stanley's top regional economists gather for a quarterly economic roundtable to examine the evolving paths of major global central banks. The focus is on central bank policy in the US, Japan, and Europe amidst shifting economic growth trends, labor markets, inflation, and currency movements—all in a world still debating stability versus volatility. The economists share their baseline outlooks, discuss risks, and break down what could alter the expected course for rates and monetary policy.

Key Discussion Points & Insights

1. US: Entering a More Stable Phase or Continued Volatility?

Speaker: Mike Gapen
Timestamp: 00:42–04:45

• Baseline Outlook:

  • 2026 growth expected to be modestly above trend—forecast at ~2.4%, similar to 2025.
  • Clarity has improved on deregulation, immigration, and fiscal policy, making for a more predictable policy environment.
  • Key factors for markets: inflation path and the pace of decline.

• Inflation and Fed Policy:

  • Firms are still passing tariffs to consumers; anticipated to last through Q1 2026.
  • "If that's the case, then we think the Fed can execute one or two more rate cuts…but we have those coming in the second half of the year." (Mike Gapen, 01:54)
  • The Fed is in "wait and see" mode, monitoring effects of previous cuts.

• Risks & Forecast Misses:

  • 2025 saw stronger than expected growth—driven by capex from AI firms and robust spending from higher-income consumers.
  • "Our models suggest that consumption is overshooting its fundamentals, which I think makes it harder for the economy to accelerate further…" (Mike Gapen, 03:16)
  • Upside risks: fiscal stimulus could drive stronger demand, keeping inflation elevated and delaying rate cuts.

• Markets:

  • Expectations for Fed cuts have been dialed back as growth remains strong.

2. Japan: Currency Challenges and Shifting Inflation Dynamics

Speaker: Chetan Aiya
Timestamp: 04:45–08:17

• Macro Outlook:

  • Positive view on Japan’s growth, expecting transition from supply-driven to demand-driven inflation as real wage growth picks up.
  • "We are expecting to see the transition…to real wage growth accelerating that supports real consumption growth and we move away from that supply side driven inflation to demand side driven inflation." (Chetan Aiya, 05:29)

• Impact of Yen Depreciation:

  • Depreciation is starting to pressure the Bank of Japan (BoJ), although so far, policy normalization has been more about ending negative rates and reaching healthy nominal growth.
  • "In the backdrop, what we are seeing on currency depreciation is making things a bit more challenging for the BoJ." (Chetan Aiya, 05:48)

• Policy Implications:

  • Risk that BoJ may need to hike rates earlier than originally projected (possibly before January 2027) to limit yen weakness and inflation spillover.
  • "There is also a threshold of where the currency can be and beyond a point, it begins to hurt the households in form of imported inflation pressures." (Chetan Aiya, 07:17)

• Wage Dynamics:

  • BoJ must monitor inflation expectations and wage negotiations as workers push for higher pay in the face of headline inflation driven by currency.

3. Europe: Disinflation and the ECB’s Next Moves

Speaker: Jens Eisenschmirt
Timestamp: 08:17–11:56

• Current Inflation Picture:

  • Europe awaiting a crucial inflation print (expected February 4) that could see headline inflation fall below the ECB’s 2% target.
  • Disinflation driven by energy base effects, services reset at year start, and wage moderation—especially in German manufacturing.

• ECB Policy Outlook:

  • Forecasting two cuts in 2026 (June and September), bringing rates to a 1.5% terminal level—an out-of-consensus view.
  • "We think the chances for this are pretty good... wage disinflation is proceeding nicely." (Jens Eisenschmirt, 09:12)

• Key Pushbacks from Market:

  • Skeptics argue wages won’t fall and fiscal stimulus could lead to overheating. Jens counters fiscal expansion is mainly in one country (Germany).
  • "But we think that discussion will change the moment you are below target in an actual inflation print. The burden of proof is the opposite. Now you have to prove is the economy really on a track that inflation will get back up to target without further monetary stimulus?" (Jens Eisenschmirt, 11:15)

• Market Signaling:

  • Little current signal from ECB on further cuts, but actual prints below target would shift the debate.

Notable Quotes & Memorable Moments

• On US growth forecasts after 2025:

  • “Growth overall for the year was over 2%, close to 2.5%. So, so if that's what we just came off of, why isn't it the case that we'd see even stronger growth, maybe even a re acceleration of growth in 2026?”
    —Seth Carpenter, 02:26

• On the challenge of yen depreciation for Japan:

  • “...when currency reaches these very high levels of range, you are going to see BoJ having to act.”
    —Chetan Aiya, 08:08

• On the ECB’s potential for out-of-consensus rate cuts:

  • “The burden of proof is the opposite. Now you have to prove is the economy really on a track that inflation will get back up to target without further monetary stimulus?”
    —Jens Eisenschmirt, 11:15

Key Timestamps for Important Segments

• 00:42 – Discussion begins on US economic outlook for 2026 (Mike Gapen)
• 01:54 – Fed’s possible rate cut timeline and inflation descent
• 03:16 – On consumption and possible limits to further US acceleration
• 05:23 – Japan macro outlook and currency implications (Chetan Aiya)
• 07:17 – Currency and inflation risk thresholds for the BoJ
• 08:51 – Europe: inflation print and ECB outlook (Jens Eisenschmirt)
• 11:15 – Market pushback and shifting ECB decision-making logic

Conclusion

This episode delivers a rich, expert-driven outlook on central bank policy trajectories across the US, Japan, and Europe. The panel weighs baseline scenarios and explores the key risks and catalysts that could lead central banks to deviate from the current, market-expected path. Whether it's the possibility of fewer-than-expected Fed cuts, an early BoJ move to support the yen, or an ECB that surprises markets with rate cuts, listeners come away with a nuanced understanding of the core global monetary policy debates heading into 2026.