UBS Forecasts Fed Delay to September, 50 Basis Points Cuts; ECB Holds Rates
UBS forecasts the Federal Reserve will delay its rate cut to September with 50 basis points of reductions forecast through 2026, and expects the European Central Bank to maintain current rates. The Iran energy surge viewed as a shock, leading UBS to recommend short-duration bonds, U.S. dollar, oil and gold.
1. Supply-Driven Energy Shock
UBS identifies the Iran conflict as causing an energy supply shock that has driven a surge in oil prices, noting Dallas Fed analysis shows these price pressures typically fade within months without altering core inflation rates.
2. Fed and ECB Policy Outlook
UBS forecasts the Federal Reserve’s first rate cut will be postponed to September, with cumulative cuts totaling 50 basis points through 2026, while projecting the ECB will maintain its key rates at the current level in its April meeting.
3. Recommended Asset Allocations
In response to this environment, UBS recommends increasing allocations to short-duration bonds and the U.S. dollar, and adding exposure to oil, commodities and gold, citing improved appeal of high-quality bonds and the potential for energy-driven market shocks to diminish diversification benefits.