UBS has outlined its base case for the US economy in the wake of US President Donald Trump’s second-term economic agenda, projecting continued growth despite potential challenges from tariffs. While tariffs are likely to rise, they are not expected to derail US economic expansion. UBS expects inflation to continue its downward trajectory, even as new trade policies take shape.
One of the key predictions from UBS is that Federal Reserve will likely reduce interest rates by 50 basis points in 2025, providing a further boost to economic activity. This anticipated rate cut follows a forecast of slower inflation, which should ease pressure on monetary policy, and support broader market stability.
Despite potential tariff increases, US equity markets will face volatility in the near term, but will ultimately trend higher, according to UBS. S&P 500 is forecast to reach 6,600 by the end of December 2025, driven by resilient economic growth, solid earnings, and favourable borrowing conditions.
On the bond side, UBS anticipates a decline in the 10-year US Treasury yield, forecasting it will fall to 4% in 2025, which could present an attractive entry point for investors looking for stable returns.
Key elements of Trump’s agenda include directing federal agencies to address persistent trade deficits, investigate unfair trade practices, and scrutinise the US-Mexico-Canada Agreement. This aligns with his stance on tariffs and international trade imbalances.
In the short term, markets appear relieved President Trump did not immediately impose tariffs on his first day in office, with the US dollar showing some weakening. However, UBS expects new tariffs to be on the horizon, particularly on China, where the effective tariff rate could rise to 25-30%.
. Read more on Business by NDTV Profit.On the bond side, UBS anticipates a decline in the 10-year US Treasury yield, forecasting it will fall to 4% in 2025. Read MoreBusiness, World, Notifications
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