UBS analysts are confident in their prediction of a soft landing for the US economy. They point to moderating consumer spending as a key factor in bringing down inflation. While recent economic data may show positive surprises, UBS believes that the underlying trend of below-trend growth remains. The Institute for Supply Management’s purchasing managers indexes confirm that growth has indeed slowed down. Consumer demand plays a crucial role in determining the economy’s trajectory, and UBS notes that the current softer demand is easing inflationary pressures.
June Economic Indicators
Despite higher-than-expected June retail sales and industrial production figures, UBS maintains its view of below-trend growth. Anecdotal evidence, rising unemployment, and falling core inflation all point towards a slowdown in the economy. The recent cooling of inflation, reflected in May and June CPI prints, supports this notion. UBS specifically mentions the expected slowdown in rents as a contributing factor to the cooling inflationary pressures. They foresee this moderate pace continuing in the months ahead.
The Federal Reserve’s Response
UBS believes that the Federal Reserve is closely monitoring these economic indicators and is likely to cut rates in the near future. Recent comments from policymakers, including Chair Powell, indicate a high probability of rate cuts starting in September. The market is already pricing in a near-100% chance of a September cut, with expectations of further cuts by year-end. UBS anticipates that the Fed will slowly reduce rates, possibly implementing one cut per quarter. However, they acknowledge that more aggressive cuts may be necessary if economic conditions worsen.
Overall, UBS’s analysis paints a picture of a US economy heading towards a soft landing. The moderation of consumer spending, along with declining inflation, sets the stage for a controlled economic slowdown. The Federal Reserve’s planned rate cuts further support this narrative, signaling a proactive approach to managing any potential economic risks. While uncertainties remain, UBS’s confidence in a soft landing for the US economy is a testament to their thorough analysis and understanding of the current economic landscape.