UBS analysts have reiterated their confidence in a soft landing for the US economy, attributing it to the downward trend in inflation and the Federal Reserve’s potential rate cuts. They emphasize that moderating consumer spending is a crucial factor in curbing inflation, despite some recent positive economic data. The Institute for Supply Management’s purchasing managers indexes point to a slowdown in growth, validating UBS’s stance on below-trend growth.
According to UBS, consumer demand remains a pivotal factor in shaping the future of the economy. The strength of consumer demand will significantly influence economic development, with softer demand currently alleviating inflationary pressures. While reports of June retail sales and industrial production exceeding expectations may suggest growth, UBS maintains its view of below-trend growth, citing anecdotal evidence, rising unemployment, and falling core inflation as indicators of a slowdown.
Recent trends in inflation have provided some relief, with May and June CPI prints exhibiting a downward trajectory. UBS emphasizes the anticipated slowdown in rents as a contributing factor to this decline, expecting this moderation to persist in the upcoming months. Furthermore, UBS believes that the Federal Reserve is poised to act, with Chair Powell hinting at potential rate cuts starting in September. The market reflects a high probability of a September cut, with additional cuts anticipated by the end of the year. UBS forecasts that the Fed will opt for a measured approach, implementing rate cuts once per quarter, but remains open to more drastic measures if economic conditions worsen.
UBS analysts stand firm in their belief that the US economy is on track for a soft landing, despite challenges posed by moderating consumer spending and ongoing inflationary pressures. The Federal Reserve’s proactive stance on potential rate cuts further supports UBS’s prognosis, indicating a possible turning point in economic policy. As uncertainties loom, UBS remains vigilant, monitoring key indicators and adjusting their outlook accordingly to navigate the evolving economic landscape.