Fed Hiking Rates to 6.5% Is ‘Real Risk’ for UBS Strategists

The combination of strong US growth and sticky inflation is raising the odds the Federal Reserve hikes rather than cuts interest rates, bringing borrowing costs to as high as 6.5% next year, according to UBS Group AG strategists.

While the bank’s base case is for two rate cuts this year, UBS now sees a growing possibility that inflation fails to decline to the Fed’s target, spurring a pivot back to hikes and sparking a deep selloff in bonds and stocks. Markets have already scaled back bets on policy easing as recent US data has shown surprising strength in the world’s biggest economy.

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