Investors Now Think Fed Rate Cut Outlook Too Bullish: UBS By Investing.com

Investing.com — Investors now believe that even expectations for the Fed to cut rates by 200 basis points over the next two years are too optimistic as stronger economic data continues to put recession worries on hold, according to the latest note of UBS research.

“The market is now pricing in fewer rate cuts than the Fed was forecasting, which is a significant change from a few weeks ago,” UBS strategists said in a note on Tuesday.

Market expectations for a rate cut have been significantly reduced following recent economic data that beat expectations, the strategist said. The market is now pricing in just 70 basis points of cuts for 2024, compared to the Fed’s projection of 100 basis points.

The move away from overly accommodative expectations was driven by the resilience of the US economy, particularly in the labor market. The September jobs report showed a robust gain of 245,000 jobs in September, well above the 150,000 expected, while the unemployment rate unexpectedly fell to 4.1 percent.

Strength in the labor market and continued inflation readings that show price pressures persist have led investors to believe the Fed’s own expectations — of 200 basis points of cuts for the cycle — are too optimistic, as rates may have to stay higher for longer. than previously anticipated.

“Not only has the market readjusted its trajectory for the rest of the year, but it has reduced the total cycle of cuts from 220bps to 150bps – below even the Fed’s SEP guidance of 200bps,” UBS said.