UBS analysts suggest that the Federal Reserve is likely to maintain its cautious stance, holding off on further rate cuts until core inflation declines further. The bank forecasts that core inflation will slow to below 2.5% by the time of the June Federal Open Market Committee (FOMC) meeting, which could provide the Fed with the confidence to resume easing monetary policy.

UBS has adjusted its outlook for rate cuts in 2025, now expecting two 25-basis-point reductions:

one in June
and another in September

for a total of 50 basis points. This marks a revision from the bank’s previous forecast of one cut per quarter, totaling 100 basis points for the year.

The Fed’s approach remains data-dependent, UBS notes. Weaker-than-expected labor market or inflation data could prompt an earlier rate cut in March, though this would depend on how economic conditions evolve in the coming months.

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