UBS thinks the market is getting the Fed wrong. The bank’s analysts argue that futures pricing and broader market expectations reflect a more hawkish Federal Reserve than what the data actually supports, and they expect easing to resume with a 25 basis point rate cut in December.
The case for mispricing
Here’s the core argument: UBS sees softening US economic data that the market hasn’t fully absorbed. The bank assigns an 84% probability to a 25 basis point cut in December 2025, which is considerably more confident than the hedging you’d expect from a firm of this size.
The bank doesn’t stop at one cut either. UBS forecasts two additional rate cuts by the end of Q1 2026, painting a picture of a Fed that gradually shifts from inflation hawk back to growth guardian. That’s a total of three cuts in a relatively compressed window, enough to meaningfully reshape the yield curve and rewrite the playbook for rate-sensitive assets.
What the numbers say about growth
UBS projects S&P 500 earnings growth of approximately 11% in 2025 and 10% in 2026. Those are healthy numbers by any historical standard, suggesting that even as the economy softens enough to warrant rate cuts, corporate America keeps grinding out profit growth.
It’s worth noting that UBS has been adjusting its own timelines. Some of their forecasting models have pointed to the possibility of the first cut being delayed as far as December 2026, driven by persistent inflationary pressures and a labor market that refuses to meaningfully soften.
What this means for investors
If UBS’s base case plays out, the implications ripple across nearly every asset class. Lower rates are broadly supportive for equities, particularly growth stocks and sectors like technology and real estate that are most sensitive to borrowing costs. Bond prices would benefit as yields decline, rewarding investors who positioned early in longer-duration fixed income.
UBS also highlights gold as a beneficiary of their outlook. Lower rates reduce the opportunity cost of holding a non-yielding asset, and gold has historically performed well during easing cycles. For portfolio constructors, the UBS view essentially argues for a risk-on tilt with a defensive hedge in precious metals.
There’s also the question of how much of a potential cut is already baked into asset prices. Investors should watch fed funds futures pricing carefully over the coming weeks, because the gap between UBS’s forecast and market expectations is where the real opportunity, or trap, lives.