What does UBS forecast regarding the Fed's interest rate policy?

Personal Consumption Expenditures (PCE) data for July showed that core inflation remained steady at an annual rate of 2.9%, while headline inflation remained at 2.6%. This indicates that the decline in energy prices and the slowdown in housing costs are offsetting persistent services inflation, keeping inflationary pressures limited.

UBS points to risks in the labor market as the main reason behind the interest rate cuts. Although the unemployment rate remains low, recent data shows that labor demand is weakening. Fed officials expect the unemployment rate to rise above its natural level by the end of the year and remain elevated through 2027.

At the Fed's latest meeting, there were two dissenting votes in favor of interest rate cuts for the first time in over 30 years. Furthermore, key figures such as Fed Chair Jerome Powell and Governor Waller have adopted a dovish stance, indicating a possible interest rate cut in September.

UBS expects the Fed to cut interest rates in its next four meetings due to inflation tracking near the target and rising employment risks.

UBS is a Swiss-based multinational investment bank and financial services group. It is one of the world's largest wealth management companies.

?? UBS's areas of operation:

Investment banking

Wealth management (specifically wealth management for high-net-worth individuals and institutions)

Global research and market analysis

Private banking and commercial banking

Why does it provide opinions on the Fed?

Major investment banks and financial institutions like UBS closely monitor the decisions of central banks that determine the direction of global financial markets. Because the US Federal Reserve (Fed) is the world's most powerful central bank:

It affects global markets: The Fed's interest rate decisions have a direct impact on the value of the dollar, capital flows, and the stock and bond markets.

To guide its clients: UBS must provide guidance to the investors whose assets it manages. Therefore, it publishes reports on the Fed's interest rate cuts, hikes, or balance sheet policies.

For investment strategies: UBS's own portfolios are also affected by Fed decisions. Making forecasts in advance is important for both its own interests and those of its clients.

To shape market expectations: Statements from institutions like UBS can also influence investors' expectations of the Fed.

News Source: 12punto