By: NICK ROBERTSON
The Federal Reserve is likely to make significant cuts to interest rates next year beginning as early as March, according to a new estimate from UBS Investment Bank.
Slowing inflation could enable a 2.75 percent decrease in the interest rate over the course of the year, nearly halving the current rate of almost 5.5 percent, UBS said.
The firm predicts that the U.S. economy will fall into a recession by the second quarter of next year, enabling a rate cut. Rates will fall as low as 1.25 percent by 2025, the market experts predict.
Other predictors, however, are anticipating just a 0.75 percent drop starting in the summer, a much more conservative forecast. Wall Street has been split on predicting the Fed’s movements.
UBS Chief Strategist Bhanu Baweja told Bloomberg that the firm sees all the signs of a standard rate-cutting cycle on the horizon.
“We don’t see the conditions for why this time is so different,” he said. “Inflation is normalizing quickly and by the time we get to March, the Fed will be looking at real rates which are very high.”
The Fed left the interest rate unchanged this month, the first time in about two years it has done so in two consecutive meetings. It is expected to leave rates the same again in December.
Annual inflation fell to 3.7 percent in September from its 9 percent peak last June, even as consumer spending, economic growth and the job market remain strong.
The core consumer price index rose by just 0.2 percent month-to-month in October, the Fed announced Tuesday, beating economist expectations. The annual inflation rate was 3.2 percent in October.
Interest rates are higher than they’ve been at any point over the past two decades, ballooning borrowing costs for homebuyers and car owners, crunching balance-carrying credit card holders and making it harder for Americans to repay their debts.