UBS and Morgan Stanley predict big rate cuts in the coming months!

[Bill Rapp]

UBS Investment Bank's strategists forecast that the Federal Reserve will start cutting interest rates by a significant 275 basis points in the next year. This projection is almost four times more aggressive than what the markets currently expect. The strategists argue that a decline in inflation will create favorable conditions for the central bank to make policy adjustments as early as March.

Their outlook on the belief that the US economy will enter a recession by the second quarter of next year which will accelerate the timetable. In contrast, the current expectation in money markets is for the Federal Reserve to only cut rates by 75 basis points, starting in July.

While the expected lower interest rates by the Federal Reserve are likely to weaken the US dollar and put downward pressure on Treasury yields. The 10-year Treasury yield will reach a low of 3.5% in the next year, as the issuance of US debt remains high.