UBS: Don't Fear the Fed's Hawkish Meeting Minutes, Predicts a 50 Basis Point Rate Cut This Year

Nick Timiraos, a journalist from The Wall Street Journal known as the "Fed's mouthpiece," pointed out in his latest article this week that the Federal Reserve (Fed) concluded during its April 30-May 1 meeting that, following the third consecutive month of disappointing inflation data, it needs to keep interest rates at their current level longer than previously anticipated.

UBS: Don’t Worry About the Fed’s Hawkish Rhetoric

UBS analysts noted that recent economic indicators, including the stronger-than-expected job market and rising U.S. Treasury yields, do indeed raise market concerns that the Fed might maintain a high-interest-rate policy for a longer period.

However, the meeting minutes that Nick released were compiled before the April Consumer Price Index (CPI) was announced, which showed that inflation had slowed. Therefore, there is no need to be overly concerned about the Fed's hawkish rhetoric.

On the other hand, UBS emphasized that the Fed's stance has consistently indicated that its ultimate goal is to keep inflation steadily moving towards 2%. Although no one can be certain about future rate hikes, the prevailing view within the Fed is that inflation is likely to decline in the medium term to achieve this target.

A 50 Basis Point Rate Cut by the End of the Year

Finally, UBS predicts that the Fed will eventually adopt a monetary easing policy this year and, as the market expects, implement a cumulative rate cut of 50 basis points:

Recent data shows that U.S. inflation and economic growth momentum have gradually weakened, and the economy is heading towards a "soft landing." Therefore, even though recent official rhetoric appears hawkish, a rate cut path is still viable. UBS expects the Fed to cumulatively lower rates by 50 basis points before the end of the year.