UBS says no rate cut coming soon, despite what the market thinks


The logo of Swiss banking giant UBS engraved on the wall is seen on its headquarters on May 8, 2019 in Zurich.

Fabrice Coffrini | AFP | Getty Images

As the market’s conviction of a rate cut keeps growing firmer, another Wall Street bank came out defying the consensus.

UBS joined Goldman Sachs in warning that the market’s expectation for a rate cut is not realistic because recent economic data has been “mixed,” rather than weak, which don’t warrant an easing of monetary policy anytime soon.

“Market expectations for 100 basis points of rate cuts by 2020 look exaggerated, in our view,” Mark Haefele, UBS’ global chief investment officer, said in a note on Wednesday. “While the Fed may eventually be forced to support growth, especially if the ongoing trade dispute with China inflicts lasting damage on capital spending and employment, we don’t expect a rate cut soon.”

The analyst cited unemployment rate “at a multi-decade low of 3.6%,” “robust demand for workers” and high consumer confidence.

The market’s rate-cut hope was sparked by recent remarks from the Federal Reserve chair Jerome Powell, who said the central bank will “act as appropriate to sustain the expansion. ” Traders believe the Fed will slash rates to compensate for the potential damage from the trade war, pricing in a nearly 80% chance of a rate cut in July and about 60% probability of three rate cuts this year, according to the CME FedWatch tool.

Goldman’s chief economist Jan Hatzius said Monday that the Fed will keep the funds rate unchanged in 2019 as Powell’s rhetoric is “not a strong hint of an upcoming cut.”

— CNBC’s Michael Bloom contributed to this report.

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