UBS now believes that the Fed will begin rate cuts in June

The anticipated date of the Federal Reserve's interest rate reduction has been revised by UBS, which now projects June rather than May. As a result, the broker has downgraded its previous projection of 100 basis points (bps) to a total drop of 75 bps in interest rates for 2024.

Analysts at UBS Chief Investment Office stated, "We now expect the Fed to wait a bit longer before cutting rates, making its first 25 basis point cut in June rather than in May, given the upside surprises to both payrolls and inflation."

The modification is based on UBS's assessment that the US economy has shown significant resilience, and the Fed is not in a rush to start cutting interest rates. With Q3 2022 in particular, the economy's growth rates have surpassed the Fed's long-term trend forecast of 1.8%.

Higher interest rates are needed to restrain economic growth, and analysts feel that relaxed fiscal policy is a major factor in this trend.

Although the payroll and inflation statistics for January came in above forecast, UBS's analysis of the underlying trends did not alter.

The experts also stated that the Fed could be forced to stick to its present policy course indefinitely if labour and inflation data keep surpassing expectations.

On the other hand, if the economy has a contraction, the central bank is probably going to lower rates considerably since inflation is probably not going to be an issue in that scenario.

(Sources: investing.com, reuters.com)