Investment banking giant UBS forecasts a “no landing” scenario for the U.S. economy, predicting sustained growth alongside manageable inflation that will support equities.
Investment banking behemoth UBS is predicting a “no landing” scenario for the U.S. economy, suggesting that sustained growth and manageable inflation will support equities. In a report on Friday,彙整 by the UBS editorial team, the banking giant highlighted the Federal Reserve's rapid series of interest rate hikes in 2022 to counter high inflation and strong economic expansion. This sparked ongoing debates about whether the Fed could manage a soft landing or drive the economy into a recession. However, UBS suggests there could be a third path, where inflation approaches the Fed’s target while economic growth continues to exceed prior expectations. Recent data suggests that the U.S. economy is moving toward this ‘no landing’ scenario. Recent economic data seems to be supporting this outlook. The labor market has been more resilient than anticipated, with the latest nonfarm payroll report beating expectations and pushing the three-month average to a robust 186,000. Revisions to the past five years of data indicate that GDP growth has averaged 2.5% per year since 2019, showing stronger performance than initially expected. While industrial production dropped 0.3% in September due to factors such as the Boeing strike and hurricanes, retail sales saw a 0.4% rise, reflecting healthy household finances and income gains.
UBS also highlighted that inflation is continuing to trend towards the Federal Reserve’s target, allowing for more flexibility in rate cuts. While month-to-month inflation figures can fluctuate, the overall disinflationary trend remains intact. Noting that the personal consumption expenditures price index, the Fed's preferred measure of inflation, recently recorded its lowest level since February 2021, UBS analysts stated: We believe inflation will be low enough for the Fed to continue cutting rates. Looking ahead, UBS anticipates market volatility as the U.S. presidential election approaches but does not expect it to undermine the broader economic momentum.
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