UBS Predicts Fed Rate Cuts of 75-100 bps if Growth Slows in 2025

Analysts at Swiss investment bank UBS forecast that the US Federal Reserve will lower its benchmark interest rate by 75 to 100 basis points this year if economic growth continues to weaken.

The projection contrasts with recent comments from Fed Chair Jerome Powell, who noted that tariffs imposed by President Donald Trump were “significantly higher than anticipated.” Powell acknowledged that these tariffs could challenge the Fed by simultaneously driving inflation higher and slowing growth.

Powell’s remarks followed news of export restrictions on NVIDIA’s artificial intelligence chips to China, a move that has created headwinds for the US technology sector and further strained US-China relations.

Despite the escalating tensions, UBS analysts remain optimistic about a potential compromise between the two countries in the coming months, though they caution that the process may be protracted. They predict that both nations will eventually roll back recent tariff increases, with average tariffs stabilizing around 34%.

UBS expects the effective tariff rate between the United States and China to settle in the 10-15% range, while Canada and Mexico are likely to remain largely exempt from new trade measures.

Amid ongoing volatility, UBS advises investors to leverage market swings to diversify and strengthen long-term portfolios. Equities are highlighted as a promising strategy under current conditions.

“Equity markets can provide a pathway through volatility while supporting future-focused investments,” UBS analysts wrote. They anticipate that US equities will end the year higher and view them as attractive given the prevailing environment.

UBS also recommends gold as a hedge against uncertainty, noting its historical role as a buffer during volatile periods. Last week, gold reached a record high of US$3,500 per ounce, representing a 30% increase year-to-date.