Morgan Stanley Just Cut Its U.S. Growth Forecast Because Gas Prices Are “More Than Enough” to Wipe Out Bigger Tax Refunds

• WTI crude hit $114.58 per barrel on April 7, 2026, with gasoline spending jumping to $503.7 billion annualized in March from $422.4 billion in February
• Real GDP grew just 2.0% in Q1 2026 with personal consumption contributing only 1.6%, the weakest reading in the recent cycle, while the savings rate fell to 4.0% from 5.2% a year earlier
• Energy PCE rose 14.43% year-over-year while core PCE increased only 3.2%, suggesting slower growth without sticky core inflation rather than stagflation

Morgan Stanley Cuts U.S. Growth Forecast on Surging Gas Prices

Key Developments

Morgan Stanley has reduced its U.S. economic growth forecast by 0.3-0.4 percentage points, citing elevated energy prices that will more than offset benefits from higher tax refunds. The firm's economics team warns that sustained fuel costs will eliminate the traditional spring consumer spending boost from tax refunds.

Critical Data Points

• Oil Prices: WTI crude hit $114.58/barrel on April 7, 2026, settling at $99.89 on April 27—sharply higher than April 2025's $59.55-$72.12 range
• Consumer Impact: Gasoline outlays jumped to $503.7 billion annualized in March 2026 from $422.4 billion in February
• GDP Growth: Q1 2026 real GDP grew just 2.0%, with personal consumption contributing only 1.6%—the weakest reading in the current cycle
• Savings Rate: Declined to 4.0% from 5.2% year-over-year, reducing household financial cushion

Inflation Dynamics

Energy PCE surged 11.56% month-over-month and 14.43% year-over-year in March 2026. However, core PCE rose only 0.29% monthly and 3.2% annually, suggesting limited pass-through to underlying inflation. Morgan Stanley expects this pattern to continue, differentiating current conditions from stagflation.

Market Implications

The divergence between headline and core inflation creates a distinct investment environment. Consumer-facing stocks most exposed to fuel cost pressures warrant particular attention. Bond investors should monitor whether slower growth without sticky core inflation supports rate relief.

Key variables to watch: WTI trajectory through summer driving season, next core PCE print, and Q2 personal consumption data relative to Q1's 1.6% contribution.