UBS: Fed unlikely to hike consecutively, market pricing of tightening path too aggressive

BlockBeats news, September 25 — UBS Chief Investment Officer Mark Haefele and his team said the market is pricing the Federal Reserve's tightening path too aggressively, and the actual pace of rate hikes may be lower than expected. After the 10-year U.S. Treasury yield broke above 5.1%, federal funds futures showed the probability of a rate hike in October rising to 70%, but UBS's base case remains that the Fed will raise rates once more in December and then hold steady.

UBS expects the Bureau of Economic Analysis's annual revisions to lower core PCE inflation by 0.2 percentage points, and combined with favorable base effects in the first half of next year, inflation may steadily decline over the next six months. The median of Fed officials' rate projections also shows rates unchanged throughout 2027, so the basis for consecutive large rate hikes is weakening.

UBS also believes that the U.S. composite PMI rising to 58.4 in September shows economic activity remains resilient, which is conducive to corporate revenue and profit growth. The institution maintains its "attractive" rating on fixed-income assets and expects S&P 500 earnings to grow 25% this year and 14% in 2027. On gold, UBS believes it still faces pressure in the short term from high rates and a strong dollar, but views a pullback in gold prices to around $4,000 per ounce as an opportunity to add exposure, and expects it to rise to $5,400 around September 2027.