The Redmond company would like a first party fighting game in the Xbox Series X / S lineup, the genre is very popular and a successful fighting game can generate money also thanks to the eSports circuit and online competitions. an ever-expanding market that Microsoft would like to try to explore more consistently.
Hence the idea of a new Killer Instinct, however at the moment there don't seem to be any teams willing to take care of the project. The Killer Instinct reboot released in 2013 was developed by Double Helix, the team was then acquired by Amazon and the work has passed into the hands of Iron Galaxy now engaged in a new secret project not yet announced.
I internal teams do not seem to have the adequate preparation to develop a fighting game while the external studios specialized in the genre are very few and even fewer companies are free from contractual ties with large publishers. One hypothesis could be the creation of a new internal study dedicated to the development of fighting games, an operation that would require a lot of time and resources.
At the moment, therefore, everything is silent but Jez Corden has no doubts: Killer Instinct will come back to life in the near future, although it will probably take years before we see anything concrete.