“I don’t think the Fed is going to stop raising rates. If you look at the inflation numbers, they’re really high, but they will come down,” he recently told Reuters Gregory Faranello, chief analyst at AmeriVet Securities in New York.
The pace of job growth shows no signs of slowing and the unemployment rate remains low. UBS expects the FOMC to raise the federal funds rate by 75 basis points by its July meeting.
The investment bank points out that with these inflation data it is not ruled out that even in the September meeting there will be another increase of 75 basis points.
Although some analysts have argued that 9% inflation would prompt the Fed to raise the rate by 100 basis points, UBS views such a move as risky. However, if that happens, the rate will go up 75 points in September.
UBS expects Fed members to acknowledge that economic activity moderated in the first half but will continue to highlight the strength of the labor market. Even though an increase in rates causes lower growth, the Fed will remain committed to bringing inflation back to its 2% target.
The institution also expects a decline in core inflation and economic growth concerns to put a halt to rate hikes after December and return to a cycle of rate cuts in 2023.
Regarding economic growth and the risks of a recession. Grupo Financiero Banorte also expects the US economy to suffer two quarters of contraction this year.
“There is a risk that the United States could enter a recession, but it will be a couple of quarters, perhaps, with negative rates. We estimate that it will grow moderately throughout the year, 1.3%,” said Alejandro Padilla, chief economist of Grupo Financiero Banorte.