UBS expects the Federal Reserve to resume rate cuts later this year, despite its recent decision to hold rates steady. The U.S. central bank kept rates unchanged last week for the first time since beginning its easing cycle in September, citing persistently elevated inflation and a resilient labour market.
However, UBS analysts anticipate that inflation will moderate toward the Fed’s 2% target by mid-year, creating conditions for further rate reductions. Fed Chair Jerome Powell also indicated that monetary policy remains “meaningfully” above the neutral rate, suggesting room for additional easing.
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Vice Chair Jefferson made the case that policy would be restrictive even with Fed Funds 100bp lower: