UBS sees high uncertainty over how much the Fed will cut rates this cycle
UBS strategists said there is “high uncertainty” surrounding the extent to which the Federal Reserve will cut interest rates in the current cycle. The consensus among investors is leaning towards a soft landing, but there is considerable ambiguity about future Fed actions, particularly in 2025.volatility, and the MOVE index for bond market volatility fell in late May to their lowest levels since before the Fed began hiking rates in March 2022.
Recent economic data, most notably slowing job growth, continuing disinflation, and Fed downplaying the possibility of rate hikes, have reduced macro risks in May, thereby restoring investor faith in a soft landing. Strategists point out,"It’s quite unlikely to be more than two cuts and the fewest is none, which means a small range."
Looking ahead, UBS believes that at some point during the summer, the focus will shift to 2025, where there is a wider range of possible economic outcomes compared to this year.
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