UBS analysts Mark Haefele and Vincent Heaney say recent inflation data point to a peak in tariff-driven price pressures on U.S. goods, creating space for the Federal Reserve to consider additional policy easing later this year.
Last week released data showed the headline U.S. consumer price index rose 2.4% in January, a softer pace than economists had expected. That cooler-than-anticipated reading has increased market bets that the Fed could bring forward the timing of its next interest-rate reduction, with some now pricing in possible action as early as June.
The CPI report followed a strong jobs-market print earlier in the week that had pushed market wagers toward a later restart of rate cuts, with the view that the central bank would likely wait until the second half of the year to resume easing. UBS notes the Fed had earlier trimmed rates multiple times in 2025 before holding its policy range at 3.5% to 3.75% in January.
Despite many policymakers remaining cautious about inflation running above the Fed 2% target, the UBS team said broader price pressures should ease more noticeably in coming months.
They highlighted easing in shelter inflation as confirmation that disinflation is underway in a key component of the CPI basket. The analysts also pointed to supportive signals from recent surveys by the University of Michigan and the New York Fed, which have suggested an improvement in consumers expectations for inflation.
"Overall, the [January] CPI report supports our view that the [Fed] should resume easing from around mid-year," Haefele and Heaney wrote. They added that the continued moderation in price growth could permit the central bank to reduce borrowing costs further.
The UBS note also argued that a shift toward a "more dovish personnel profile" at the Fed could strengthen market expectations for additional cuts. They cited recent comments from Kevin Warsh, President Donald Trump 's nominee to replace current Fed Chair Jerome Powell, noting Warsh's remark that stronger productivity should help restrain price gains and that such comments indicate a preference for relatively looser monetary policy.
On the basis of these developments, UBS expects two 25-basis-point rate cuts between June and September. The bank said this policy backdrop would be favorable for equities, bonds, and gold.
Implications in brief
- Cooling of tariff-related goods inflation and moderating shelter costs underpin UBS expectation of resumed easing.
- Consumer inflation expectations from recent surveys lend additional support to the view that price pressures are abating.
- Changes in Fed personnel tone could reinforce market bets for earlier and multiple rate cuts.