UBS: Federal Reserve may eventually cut interest rates more than market expectations

According to market sources, strategists at UBS believe there is a clear risk that US interest rates will eventually fall more than the market is currently pricing in, potentially inflating a stock market bubble. The UBS team, led by Andrew Garthwaite, said recessions have accompanied the Fed's 50-basis point easing cycle since 1981, but this time they see it as a sign that the Fed is aggressive rather than recessionary. Garthwaite pointed out that the market pricing in interest rates will bottom out at around 2.8%, the level of neutral interest rates that the Fed has hinted at, "so there is a clear risk that interest rates will eventually fall more than expected".
The UBS team believes that a steepening yield curve dominated by short-term bonds benefits defensive stocks and consumer goods, but excludes luxury goods. Small-cap stocks are expected to outperform because they have three times as much floating-rate debt as large-cap stocks.