UBS On-Air: Paul Donovan Daily Audio 'The theater of the Federal Reserve'
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The minutes of the last Federal Reserve meeting are due, and should be fascinating. This meeting cut interest rates by 50bps, and had the first Fed governor dissenting in over two decades. Dissents may possibly be managed as part of the theater of the Fed—a single high profile di
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The desk believes the Federal Reserve's recent signaling reflects a marked shift towards a more cautious approach to rate cuts, as noted in the latest minutes. While a rate cut was considered appropriate back in December, the Fed under Chair Powell is likely to pursue a slower pace for future reductions, with inflation trends dictating the pace into 2025. Per the full note from UBS, the prospect of inflation risks tied to proposed trade policies under the new administration furthers the complexity of the Fed's outlook.
UBS On-Air: Paul Donovan Daily Audio 'US rates paths'
Per the full note [source], UBS Chief Economist Paul Donovan argues that the FOMC meeting minutes and Fed Governor Waller's speech are the key events today, with the market focused less on the current economy and more on political uncertainty in 2025. Donovan expects inflation to moderate in H1 2025, allowing the Fed room to ease, but sees political risks to inflation as a later concern. The desk's base case is that the Fed will cut rates in the first half of the year, though internal Fed divisions add nuance. This view aligns with a modestly bullish USD stance near term, but the broader path hinges on political developments.
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