© Reuters. UBS updates outlook for US economy and interest rate cuts
UBS economists have revised their outlook for the US economy, but still expect a slowdown in 2024.
Specifically, the bank now forecasts a real GDP growth rate of about 1.25% for the four quarters of 2024, an upward revision from previous expectations, citing “weak corporate fixed investment, less fiscal policy support in 2024 than 2023.” and a soft global background.”
In this updated view, economists also expect the labor market to continue to expand, albeit more slowly, and unemployment rates to rise only slightly. This more optimistic labor market forecast leads to lower expectations of unemployment-related disinflation.
As a result, economists have revised their core PCE inflation forecast for 2024 upward by about 0.4 percentage points and now expect it to reach 2.3% year-on-year in the fourth quarter, reflecting the smaller impact of the labor market slack on inflation.
“We still expect inflation to be on a bumpy path down, but slightly slower than before, with core PCE inflation at 2.1% at the end of 2025,” the economists said.
“We expect the FOMC to begin “winding back” the restrictive stance of monetary policy at the June FOMC meeting with a 25 basis point reduction in the federal funds rate target range,” they added.
They expect two more 25 basis point rate cuts at the Federal Open Market Committee (FOMC) meetings in September and December, setting the target range for the federal funds rate at 4.50% to 4.75% by the end of 2024.
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