Anticipating a Major Shift in US Monetary Policy
UBS has forecasted a significant reduction in US federal rates in 2024, predicting cuts nearly four times greater than the current market consensus. This bold prediction stems from concerns about persistent economic issues, despite signs of resilience. The firm expects a shift in the Federal Reserve’s strategy due to a combination of slowing growth, increasing unemployment, and ongoing disinflation pressures.
The Underlying Economic Factors and Predicted Adjustments
According to UBS, the US Federal Reserve might initiate rate cuts as a preventive measure against overly restrictive monetary conditions and later as a response to economic weakening. The anticipated reductions are a response to the economic challenges that have become more pronounced over the past year, such as the significant withdrawal of credit from the US economy, which has exacerbated starting problems. These challenges have led UBS to project that the US economy will face considerable hardships, including a potential contraction and a spike in unemployment rates in the upcoming year.
UBS Versus Other Economic Outlooks
Contrasting with UBS’s grim outlook, other institutions like Goldman Sachs maintain a more optimistic view, predicting steady real income growth and a stronger business cycle recovery, especially in parts of Asia. This divergence highlights the uncertainty and complexity of predicting economic trends. UBS’s predictions, if accurate, could lead to a substantial easing of monetary policy in 2024, aimed at mitigating the economic downturn and fostering a recovery by 2025. This situation underscores the precarious balance the Fed must maintain to navigate between controlling inflation and supporting economic growth without triggering a recession.