Morgan Stanley has issued a warning against the Federal Reserve's 2026 rate-cut outlook, stating that a hawkish pivot by global central banks, not economic weakness, is the biggest risk to markets. The warning comes after the Federal Open Market Committee (FOCC) decided to hold interest rates steady at 3.50% to 3.75%. This shift, along with rising oil prices tied to the Iran war, has led to a sharp tightening in financial conditions. The negative correlation between stocks and interest rates has reemerged, indicating higher rates are a headwind for equities. For investors hoping that the Fed's latest “dot plot” signals eventual easing, Morgan Stanley’s message is clear that a reversal in U.S. central bank hawkishness is crucial. The Iran war has contributed to this shift, opening the traditional stagflation dilemma of rising prices and slowing growth.