On Thursday, UBS economists interpreted the latest Consumer Price Index (CPI) figures as a clear sign for the Federal Reserve to initiate interest rate cuts. They predict the Federal Reserve will use the upcoming Federal Open Market Committee (FOMC) meeting at the end of July to indicate readiness to reduce rates by the September meeting, provided the economic data continues to show a downward trend.
The economists' analysis follows the CPI print released today, which suggests both inflation and the labor market are softening. This development, according to UBS, opens the pathway for the Federal Reserve to adjust its monetary policy. Their forecast includes an expectation of a "soft landing," where economic growth is slightly below the trend, and the Federal Reserve reduces interest rates once every quarter.
UBS further notes that if economic indicators show further weakening, the Federal Reserve might consider more aggressive rate cuts. This stance is reflected in UBS's current investment strategy, which favors quality bonds. The investment firm anticipates these bonds to gain as the Fed embarks on a cycle of lowering interest rates.
The economists' outlook is contingent on the continuation of the recent economic trend, which will be monitored closely in the lead-up to the FOMC meeting. UBS maintains that the expected monetary policy adjustments will be beneficial for quality bonds, a position that aligns with their investment recommendations.
In other recent news, the Federal Reserve may likely cut interest rates in September, according to an economist at RBC, following a dip in the Consumer Price Index (CPI) growth. The U.S. headline CPI growth for June fell to 3% from May's 3.3%, missing market expectations.
BCA Research, on the other hand, predicts a drop in the S&P 500 to 3750 due to an upcoming recession and a global economic slowdown by the end of 2024 or early 2025.
In contrast, U.S. households have hit a record net worth of $161 trillion in the first quarter of 2024, mainly due to rising equity prices and real estate values, as reported by the Federal Reserve. Analysts at Goldman Sachs (NYSE:GS) anticipate a strong earnings cycle and increased market confidence by the end of 2024. However, JPMorgan (NYSE:JPM) sees high U.S. stock valuations amid inflation fears and nearly 20% profit growth expectations as unrealistic.
Asian markets have been bolstered by potential interest rate cuts by the U.S. Federal Reserve, causing a rise in the MSCI's broadest index of Asia-Pacific shares outside Japan. These are some of the recent developments in the financial markets.
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