The US economy will go into recession next year and that will lead to a sharp cut in interest rates by the Federal Reserve. At least that’s what a leading European bank claims.
According to UBS, the Fed will respond to falling inflation and the economic downturn by cutting rates by an impressive 275 basis points — nearly four times the 75 basis point cut the market currently expects, according to CME Group’s Fedwatch tool.
Fed cuts would result from a projected US recession in the second and third quarters of 2024 and a continued slowdown in core inflation, UBS added.
From March 2022, the Federal Reserve raised borrowing costs from near zero to nearly 5.5% in an effort to curb rising prices. Inflation hit an almost four-decade high of 9.1% in June last year. Since then, prices have fallen slightly, although they are still far from the central bank’s 2% target.
UBS said one of the key features driving rates down is the Fed’s strong easing cycle, which has been in place since March 2024. That’s why analysts expect rates to fall to just 1.25% in the first half of 2025.
This tightening campaign is expected to strain the economy, but so far the US has managed to avoid a recession. The country’s gross domestic product increased 4.9 percent in the third quarter, its fastest growth rate in two years.
The rate cut will be welcome for the US housing market. Last month, the average interest rate on 30-year loans rose to 7.79 percent, according to the government mortgage corporation Freddie Mac. A year earlier, the average interest rate was 7.08 percent.
Fifteen-year loans are currently averaging 7.03% per annum, up from 6.92% a week earlier and 6.36% per annum a year ago.
Rising mortgage rates and home prices aren’t just affecting buyers—they’re also hurting sellers. A record number of sellers lowered their listing prices in October, according to a new report from Redfin.
2023-11-14 16:05:57
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