Uncertainties loom but there are also opportunities in 2024: UBS

Seminar speakers note robust US economy, gains for Asian markets, end of globalisation

- Ven Sreenivasan

Interest rate cuts, falling inflation, a US economic soft landing, weakening greenback, slower growth in China, deglobalisation and a potential second Trump presidency in the US. These were some of the scenarios painted by speakers at a UBS 2024 market outlook seminar on Jan 9.

Kicking off the session was former Fed governor William Dudley, who said that while the US Federal Reserve is ready to pivot to loosening its monetary stance, interest rate cuts will unfold more slowly than the market anticipates.

Mr Dudley, who was president of the New York Fed from 2009 to 2018, said he expects smaller rate cuts, and they could come later than current forecasts.

“The possibility of a US economic soft landing has gone up considerably, and the Fed’s job is now easier,” said Mr Dudley, who now sits on the board of UBS group. “But given sticky service sector inflation and the tight labour market, the Fed is not sure of the magnitude (of cuts) or timing yet.”

At its December 2023 gathering, the Fed hinted at three rate cuts totalling 75 basis points. The market is projecting five rate cuts totalling some 150 basis points in 2024.

Mr Dudley sees the Fed starting to make cuts to its key rate (which is now 5.25 per cent to 5.5 per cent) in May, as core inflation trends down towards 2.5 per cent.

He sees the closely watched 10-year US Treasury yield at 4.5 per cent in 2024, suggesting that tightness in money markets will remain for a while.