UBS Global Research pushes back Fed rate cut expectation to June

By Thomson Reuters Mar 21, 2024 | 6:23 AM

(Reuters) – UBS Global Research now expects the Federal Reserve to start cutting interest rates from June, a month later that its previous prediction and in line with other brokerages’ forecasts, it said on Thursday, after the central bank broadly stuck to its monetary policy trajectory.

UBS expects a 25 basis point (bps) cut in June, followed by two additional 25 bps of cuts each in September and December, in line with brokerages including J.P. Morgan and Goldman Sachs, leaving its target range for the federal funds rate at 4.50%-4.75% by the year-end.

Fed Chair Jerome Powell said on Wednesday recent high inflation readings in the U.S. had not changed the underlying “story” of slowly easing price pressures and affirmed that solid economic growth will continue.

UBS also increased its 2024 core personal consumption expenditure (PCE) inflation forecast – the Fed’s preferred gauge for inflation – by about 0.4 percentage point to 2.3%.

“We still expect inflation is on a bumpy path lower, but a touch slower than before,” UBS economists said in a note.

The brokerage now forecasts the United States’ gross domestic product (GDP) to grow 1.2% this year while still expecting a slowdown. The Fed’s new quarterly economic projections showed officials expect the economy to grow 2.1% in 2024.

For 2025, UBS forecasts the federal funds rate to move lower to 3.00%-3.25%.

(Reporting by Gokul Pisharody in Bengaluru; Editing by Sonia Cheema)