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UBS said it now expects the Fed to begin its rate-cutting cycle in December as it says it wants to have sufficient data before reversing policies aimed at curbing inflation.
Federal Open Market Committee Wednesday Acknowledging “modest further progress” Moving towards the 2% inflation target, 25 basis points of rate cuts are now expected, according to the dot plot update, compared with the previous forecast of 3 rate cuts.
“A rate cut in September is certainly possible, but this is no longer our base case,” UBS economists led by Jonathan Pringle said in a note on Wednesday. UBS It said the FOMC “likes to communicate actions in advance” and will receive three more U.S. employment and consumer price index reports between now and its September meeting.
Pringle said: “The data will need to change a lot of people’s minds for people to start cutting production again in September, and to start doing so in the next two months, we think to be able to realistically implement the planned production cuts in September. On the table “We now think a first rate cut at the December FOMC meeting is more likely. ”
Goldman Sachs this week insisted on announcing a rate cut of 5.25%-5.5% at the September meeting. Citibank and JPMorgan last week revised their July forecasts to September and November respectively. In addition, the Seeking Alpha investment sentiment survey found that the market favors the Federal Reserve’s first interest rate cut in September.
UBS expects the labor market to slow but said the extent of the change is not consistent with significant weakness that would prompt the Federal Reserve to take action in September. Data released on Thursday showed that weekly initial jobless claims rose to 242,000, the highest level in nine months, and the producer price index unexpectedly fell 0.2% in May.
In markets Thursday, the S&P 500 (IVV) (SPY) and Nasdaq Composite Index (COMP:IND) were hovering near the all-time highs set on Wednesday. U.S. Treasury yields (US10Y) (US2Y) fell.
