UBS Predicts Interest Rate Drop in the U.S. Amid Economic Concerns. 😱
Globally renowned bank UBS anticipates a decline in interest rates in the United States next year. The bank attributes this forecast to slowing economic growth, rising unemployment, and a decreasing trend in inflation.
UBS's Global Head of Economic and Strategy Research, Arend Kapteyn, highlights that current conditions are significantly worse than they were a year ago.
The U.S. economy has experienced a "historically large" credit pull, providing crucial insights into the potential actions of the Federal Reserve (Fed) in the face of economic downturn.
UBS predicts that the Fed will target a policy interest rate between 2.50% and 2.75% by the end of the year, reflecting a substantial reduction.
Economic Outlook:
Despite some economic resilience in 2023, UBS expects ongoing challenges and risks to persist. The bank's economists suggest that growth-supporting measures overcoming economic obstacles in 2023 may not continue into 2024.
Factors Influencing Rate Drop:
UBS anticipates that increased unemployment in 2024 will weaken economic output. The Federal Open Market Committee (FOMC) is expected to lower interest rates to counteract economic weakness, particularly as nominal fund rates become more restrictive with falling inflation.
Recent FOMC Actions:
Between March 2022 and July 2023, FOMC implemented 11 interest rate hikes, raising the federal fund rate from 0.25-0.5% to 5.25-5.5%. The Fed has maintained these rates since, sparking speculation about potential future rate cuts.
Fed's Stance:
Fed Chairman Jerome Powell, however, expressed uncertainty last week about the Fed's ability to sustainably return inflation to the 2% target.
