UBS – ‘Ignore FOMC, Fed to cut rates in 24’

The Federal Reserve will lower interest rates in 2024, according to UBS analysts, despite the hawkish tone in the most recent Federal Open Market Committee (FOMC) minutes.

According to the minutes, some Fed officials were willing to raise interest rates even further if there was a real risk of inflation. Compared to Fed Chair Jerome Powell's comments following the meeting on May 1, when he minimised the necessity for further rises, this position was more aggressive.

UBS also points out that recent economic data has stoked worries that the Fed would maintain high interest rates for an extended period of time. These statistics include stronger-than-expected labour market indicators and increases in US Treasury yields.

The bank does point out that these minutes are older than the Consumer Price Index (CPI) for April, which indicated a slowing in inflation.

They claim that in order to guarantee that inflation moves stably towards the 2% objective, the Fed has continued to take a gradual, data-dependent approach. Although rate increases are not completely out of the question, according to UBS, Fed policymakers generally anticipate that inflation will decrease over the medium run.

UBS projects that by year's end, the Fed will have loosened financial conditions by 50 basis points. They contend that the most recent data indicates a return to disinflation and a slowdown in the US economy, indicating a gentle landing. Thus, UBS thinks the Fed is still likely to lower rates despite the recent hawkish tone.

(Sources: investing.com)