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Investing.com -- UBS expects the Federal Reserve to deliver a series of interest rate cuts totaling 100 basis points over the next four meetings, starting in September.
The call follows increasingly dovish signals from policymakers, with Governor Christopher Waller noting he could support a larger 50bp cut if labor market data weakens, though he currently leans toward a 25bp move.
New York Fed President John Williams also recently said “every meeting is, from my perspective, live,” and that risks are shifting more toward employment.
According to UBS, the economic backdrop is turning more supportive of easing. U.S. GDP expanded just 1.2% in the first half of 2025 and activity is expected to remain soft.
As the labor market cools, the bank sees downside risks to employment playing a larger role in Fed decisions.
At the same time, inflation appears manageable. Core inflation rose to 3.1% in July, and UBS projects a gradual increase toward 3.5% by year-end. Slowing shelter costs and resistance from consumers are expected to offset some of the upward pressure from higher wholesale prices.
“Fed speak, FOMC composition point toward a resumption of rate cuts,” strategists led by Mark Haefele wrote, adding that Chair Jerome Powell at Jackson Hole also highlighted labor market softness.
Market pricing currently implies an 83% chance of a 25bp cut in September, with Treasury yields already adjusting. 2-year yields have fallen to around 3.63%, while the two- to ten-year spread remains wide at roughly 57 basis points.
Strategists argue that investors can benefit from the shift in policy through high-quality fixed income, which still offers yields above cash and potential for capital gains if cuts go deeper.
They also see diversification into medium-tenor corporate bonds as a way to reduce portfolio volatility.
Gold is expected to be another beneficiary of lower real rates and the current geopolitical events, with UBS maintaining its target of $3,700 an ounce by June 2026.