UBS: The Federal Reserve's final rate cut may exceed market expectations

ChainCatcher news, according to Jinshi reports, UBS strategists believe there is a significant risk that U.S. interest rates will ultimately decline more than the market is currently pricing in, which could inflate the stock market bubble. The UBS team led by Andrew Garthwaite stated that since 1981, the Federal Reserve has initiated a policy easing cycle with a 50 basis point cut accompanied by an economic recession, but this time they believe it is a sign of the Fed's aggressiveness rather than an economic downturn.

Garthwaite pointed out that market pricing reflects that interest rates will bottom out around 2.8%, a level that the Federal Reserve has previously indicated as the neutral interest rate, "therefore there is a clear risk that interest rates will ultimately decline more than expected."

The UBS team believes that a steepening yield curve dominated by short-term bonds is favorable for defensive stocks and the consumer goods sector, but not including luxury goods, and expects small-cap stocks to outperform, as their floating rate debt is three times that of large-cap stocks.