

Market Analysis
UBS economists affirmed their expectation of a gentle slowdown for the US economy, predicting that the Federal Reserve will likely initiate interest rate reductions starting in September.
Despite significant economic data volatility since the pandemic's onset, certain trends have stabilized, according to UBS. The labor market, previously overheated, has largely returned to pre-pandemic levels due to a notable increase in available labor.
Additionally, indicators such as retail sales and inflation are indicating moderation. May's core Consumer Price Index (CPI), which excludes food and energy costs, rose by only 0.16% month-over-month, the smallest increase since August 2021. While the year-over-year core inflation rate has decreased, it remains significantly higher than pre-pandemic levels.
UBS noted that housing costs have proven more persistent than anticipated, but they anticipate a slowdown in inflation ahead, particularly with new data on rental lease rates.
Regarding monetary policy, the Federal Reserve maintained interest rates at its June meeting, consistent with market expectations. The latest projections now suggest only one 25 basis point rate cut by the end of the year, revised down from three projected in March, indicating a potential holding pattern until December. Despite robust economic forecasts compared to earlier predictions, UBS economists believe the Fed is likely to delay rate cuts, foreseeing a possible reduction in September as economic indicators soften.
UBS highlighted that while there are risks that could lead the Fed to maintain rates for longer than anticipated, they consider further rate hikes unlikely. Overall, UBS anticipates a controlled slowdown for the US economy, with potential downward risks mitigated by the Fed's ability to implement more aggressive rate cuts if necessary.
Paraphrasing text from "Investing" all rights reserved by the original author.