Switzerland's largest bank puts out a view predicting a drastic cut in US interest rates by the Federal Reserve. Their forecast is completely out of sync with the rest of the market and peers.
Every year, Saxo chief economist Steen Jakobsen draws significant attention in the financial markets with his list of ten «Outrageous Predictions». They are sometimes meant to be taken with a pinch of salt although they often have a deeper background prompting readers to think about things completely differently.
But it is not often that you can cast the economists at Switzerland's largest bank, UBS, in much the same light.
Yet on Monday, they surprised the market by leaning way out of the window when it comes to US interest rates next year as they believe that the Federal Reserve under Jerome Powell will cut rates by 2.50 to 2.75 percent by the end of 2024.
The Exact Opposite
It would not be an exaggeration to say that the forecast did not fit anyone's consensus as the level they are forecasting rates to end up is about 275 basis points below current levels.
That is almost four times as much as the markets are expecting, where predictions are for a cut of around 75 basis points. The UBS forecast is also way off the median forecast of a Fed funds rate of 5.1 percent at the end of 2024, or a cut of 25 basis points at best.
March Cuts
According to Bhanu Baweja, chief strategist at UBS's investment banking business, a continued decline in inflation will allow the Fed to start easing monetary policy from March on.
The UBS experts also believe that the American economy will weaken far quicker than the market assumes and that there will be a slight recession by the middle of 2024, something that also contrasts with other economists who are predicting a soft landing instead.
