Global financial giant UBS has published a noteworthy assessment of US monetary policy. The bank stated that it maintains its expectation that the Fed will cut interest rates later in the year.
A research note published by UBS emphasized that the Fed remains on a path of monetary policy easing under the current outlook. The report highlighted that Fed Chairman Jerome Powell has recently indicated that the need for tightening is limited despite the rise in energy prices. It recalled Powell’s statement that supply shocks, particularly those like rising oil prices, are generally ignored as long as inflation expectations remain under control.
UBS analysts stated that the Fed is looking for more evidence of a sustained decline in core inflation before returning to loose monetary policy, but they still expect a total of 50 basis points of interest rate cuts by the end of the year.
On the other hand, the report also included projections for the US bond market. UBS pointed out that current US Treasury yields are significantly higher than before the geopolitical tensions, arguing that there is therefore room for downward movement in yields. The bank stated its year-end forecast for the 2-year US Treasury yield is 3.25%, and for the 10-year Treasury yield is 3.75%.
*This is not investment advice.