UBS Forecasts A US Recession In 2024, Expects Aggressive Fed Rate Cuts

UBS Group AG anticipates the United States to enter a recession next year, leading to a string of Federal Reserve rate cuts. The Swiss bank’s predictions are notably more bearish than the market consensus.

CNBC reported that UBS anticipates the Federal Reserve to slash interest rates by up to 275 basis points in 2024. This is almost four times the market consensus.

In its 2024-2026 outlook for the U.S. economy, UBS indicated that despite economic resilience through 2023, many of the same risks and headwinds persist. The bank’s economists suggested that the support for growth that enabled 2023 to overcome these obstacles would likely not continue in 2024.

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UBS predicts that rising unemployment and disinflation will weaken economic output in 2024. This, they believe, will prompt the Federal Open Market Committee to cut rates initially to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to curb economic weakening.

Fed Chairman Jerome Powell stated last week that he was “not confident” the FOMC had yet managed to return inflation sustainably to its 2% target. UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter.

The Swiss bank’s forecasts are significantly below the market consensus. Goldman Sachs, for instance, projects the U.S. economy to expand by 2.1% in 2024.

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