Investing.com — The U.S. economy will potentially to see “higher for longer” economic growth, inflation and interest rates, according to analysts at UBS.
In a note to clients on Monday, the analysts said this can be seen in recent data, adding that it is still “more likely than not” that they will begin to decline by the end of the year.
“[T]he overarching macro theme for the past few months is reflation, led primarily by upward revisions to the U.S. growth outlook,” the analysts said.
They said that a resurgence in price pressures does not typically last indefinitely, and cool as projections for strong economic growth begin to abate.
However, the analysts flagged that the risk remains that a renewal in inflation could turn into “overheating,” which will require elevated borrowing costs to corral the wider economy — an outcome that would be “a negative for pretty much all asset classes.”
The comments come as markets gear up for the Federal Reserve’s latest interest rate announcement on Wednesday. Traders do not expect the U.S. central bank to alter rates from a more than two-decade high range of 5.25% to 5.50%, meaning that particular attention will be placed on comments from Fed Chair Jerome Powell. In April, Powell flagged that economic figures have “not given us greater confidence” that inflation is sustainably on a path down to the Fed’s 2% target level.
Officials remain wary of slashing rates too soon because of signs of persistently elevated prices, resilience in the labor market and overall solid activity in the U.S. economy. Many investors are subsequently betting that the Fed’s much-anticipated first cut, which some previously thought would come this spring, will now not arrive until September, according to CME Group’s (NASDAQ:) closely-watched FedWatch Tool.
