UBS Delays US Fed Rate Cuts Due to Inflation and Labor Market Strength
UBS Revises US Monetary Policy Easing Forecasts Amid Economic Pressures
Persistent Inflation and Labor Market Resilience
May 13 (Reuters) - UBS Global Wealth Management joined a wave of brokerages in pushing back their U.S. monetary policy easing forecasts, citing persistent inflation and resilience in the labor market and economic growth.
Brokerages are increasingly betting on no policy easing this year, in contrast to expectations of at least two quarter-point reductions earlier this year.
Geopolitical Tensions and Inflation Concerns
The Iran war, which has stretched into its 11th week with no clear path to a ceasefire, has driven oil prices higher, heightening inflation concerns.
U.S. consumer inflation quickened to a three-year high in April, with energy inflation accounting for more than 40% of the rise.
UBS Rate Cut Projections and Analyst Commentary
Updated Rate Cut Timeline
The wealth management division of UBS Bank expects the U.S. Federal Reserve to cut rates by 25 basis points each in December 2026 and March 2027. The brokerage had previously forecast 25 bps rate cuts in September and December this year.
Analyst Insights
"The conditions needed to justify a September move—particularly sustained core goods disinflation and reduced supply-side uncertainty—have not yet been met," UBS analysts, led by Andrew Dubinsky, said in a note on Tuesday.
"At the same time, growth and labor market conditions have reduced the urgency of a near-term cut," UBS said.
Labor Market Data and Market Expectations
Recent Labor Market Performance
Last week, data showed job growth in April was better-than-expected and unemployment held at 4.3%, indicating a resilient labor market.
Market Pricing for Fed Policy
Traders are pricing in a roughly 87.4% probability of no policy easing in September, according to the CME FedWatch tool.
(Reporting by Kanishka Ajmera in Bengaluru; Editing by Janane Venkatraman and Mrigank Dhaniwala)
