UBS analysts forecast inflation to remain moderate despite market shocks

UBS economists, led by Chief Economist Paul Donovan, believe that inflationary pressures are likely to remain moderate in the coming periods, despite recent volatility in financial markets. Although recent U.S. consumer price data was released before the most intense market movements, these figures remain essential for guiding the Federal Reserve’s upcoming monetary policy decisions.

Limitations of the Fed’s tools in market turbulence

Donovan highlighted a critical point: the Federal Reserve does not have appropriate instruments to intervene in isolated market fluctuations. The institution is equipped to respond only to broad-based price increases, not to specific volatility shocks. This becomes even more relevant considering that gasoline prices have risen approximately 27% since their lows recorded in January, a movement not fully reflected in last month’s price data.

Real impact on consumer spending

Although the sharp rise in fuel prices is not fully reflected in February’s indicators, consumers are already facing visible pressures elsewhere. Prices for various food products have increased significantly, creating a tangible sense of rising living costs. This scenario reinforces UBS analysts’ view that moderate inflation coexists with localized disruptions across different sectors of the economy.

UBS emphasizes the importance of distinguishing between structural inflationary pressures and true versus transient market shocks—an essential factor the Fed should consider when calibrating its policy response in the coming months.