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The Federal Reserve aims to drastically cut interest rates by 275 basis points next year, according to UBS.
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This projected cut is almost four times more substantial than what the market anticipates.
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UBS anticipates that a recession in mid-2024 will prompt the central bank to initiate easing measures.
The US economy is expected to decline into a recession in the coming year. UBS foresees the Federal Reserve responding to diminishing inflation and an economic downturn by executing significant interest-rate cuts.
UBS released their forecast, suggesting that the Fed will combat economic challenges by implementing a drastic easing cycle starting in March 2024, ultimately lowering rates to just 1.25% in the first half of 2025. According to the economist Arend Kapteyn and strategist Bhanu Baweja, the Fed’s objective is to counteract the US recession forecast for Q2-Q3 2024, fueled by a slowing headline and core inflation.
In the wake of raising borrowing costs from nearly zero to around 5.5% since March 2022, the tightening campaign affected inflations, which peaked at 9.1% last year, and subsequently began to decelerate, although still exceeding the central bank’s 2% threshold.
Although the tightening campaign is believed to put a strain on the economy, the US has so far managed to evade a recession, with the gross domestic product expanding 4.9% in the third quarter, marking its highest growth rate in two years. Moreover, the jobs market has also proven resilient despite the Fed’s rate hikes, with the unemployment rate gradually increasing but remaining below 4%
Interestingly, UBS’s recession prediction contrasts with a different perspective voiced by UBS’s head of asset allocation for the Americas, Jason Draho, who remains optimistic about the US economy’s surprising resilience and anticipates a “roaring ’20s” period characterized by enhanced GDP growth, inflation, bond yields, and interest rates.
For more insights, read the original article on Business Insider
