(New York)

The market is overly reliant on a rate cut, say UBS and Goldman Sachs. Both banks think investors are banking too strongly on the Fed cutting rates. The market is currently forecasting three 25 bp rate cuts by the end of the year. Treasury markets have surged, but too far says Goldman. UBS believes “Markets now imply that the Fed will cut rates by around 70 basis points this year and 35 bps next year. We find this excessive … We believe it would take a recession to provoke the magnitude of rate cuts currently being priced by the market, and this remains unlikely in our view”.

FINSUM: We do not believe the Fed will cut rates this sharply unless there is a recession, but maybe that is exactly what markets are expecting (just look at the yield curve).