Video: UBS Road to the Election - Wealth and taxes(8:17)
With the direction of US taxes hinging on the election outcome, Ainsley Carbone, Total Wealth Strategist, CIO Americas, weighs in on what a Trump or Biden win could mean and how you can manage future liabilities either way.

Thought of the day

Federal Reserve Governor Christopher Waller has indicated that recent data pointing to higher-than-expected inflation have reinforced the case for delaying the start of the rate-cutting cycle. Speaking at an Economic Club of New York gathering on Wednesday, Waller said “there is no rush to cut the policy rate” right now, and that “it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%.”

Following the comments, markets scaled back expectations for easing this year by around 5 basis points, to 75 basis points. Investors' attention will now turn to the release of the Fed’s preferred measure for inflation, the core personal consumption expenditures index, on Friday, when markets will be closed for a public holiday.

But the more hawkish tone of Waller's remarks did little to dent optimism in equity markets, with S&P 500 futures down just 0.1% on Thursday after the index rallied 0.9% on Wednesday-hitting its 21st all-time high so far in 2024 and taking the year-to-date gain above 10%. Nor did the latest Fed commentary change our view that the central bank remains on track to cut rates this year, starting at its June policy meeting.

The Fed is biased toward easing policy this year. Despite his caution on inflation, Waller noted in his speech that rate cuts are not off the table, adding that further expected progress on lowering inflation “will make it appropriate” for the central bank to begin cutting rates this year. The Fed’s latest dot plot indicated that the median forecast from policymakers was still for three rate cuts by the end of this year, in line with our view. In addition, the Fed sees the current level of rates as well into restrictive territory.

Inflation should trend lower in the coming months. We believe that higher-than-expected releases in January and February were partly driven by temporary factors, including seasonal price hikes at the start of the year, and we expect the decline in inflation to resume in the coming months. In fact, given the modest increase in rents for new tenant leases, which lead shelter prices in the consumer price index by around 12 months, we remain confident that the biggest component of the index will continue to slow. In addition, business surveys have indicated that consumers are pushing back harder against further price increases, and overall softer economic conditions this year should help to ease inflationary pressures.

Growth shows signs of moderating, and the labor market appears to be cooling off. With retail sales showing signs of cooling, US growth is expected to moderate from an unsustainable pace. It was running at an annualized 4% rate in the second half of last year, but the Atlanta Fed’s GDPNow model is tracking growth of a much lower rate of 2.1% for the first quarter of this year. Recent trends in the labor market should also give the Fed some comfort, as the unemployment rate rose to the highest level in two years, and growth in average hourly earnings slowed to just 0.1% month-over-month in February.

So, we maintain the view that by the time of the June meeting, conditions should be right for the Fed to trim rates. This backdrop means that investors should proactively manage their liquidity via a combination of fixed-term deposits, bond ladders, and certain structured investments, and lock in still-elevated yields in quality bonds.