• Julius Baer forecasts four 25-basis-point Fed rate cuts starting October, lowering the federal funds target rate to 3.5% by March 2026.
  • The cuts are primarily driven by easing inflation risks, with secondary concerns over economic growth and unemployment.
  • The Fed is expected to pause after March 2026 as inflation stabilizes near 3%, above its 2% target.

A Dovish Outlook from Julius Baer

Julius Baer’s chief economist David Kohl has projected a more aggressive easing path for the Federal Reserve than current market consensus, anticipating four consecutive 25-basis-point rate cuts beginning in October. This would reduce the federal funds target rate from 4.5% to 3.5% by March 2026, according to a note from the Swiss private bank. Kohl emphasized that the cuts are largely a response to diminishing inflation risks, though rising unemployment and slowing growth also factor into the calculus.

After March 2026, the Fed is expected to hold steady, as inflation is likely to remain stubbornly near 3%—still above the central bank’s target. "Monetary policy will ease predominantly due to fading inflation pressures," Kohl wrote, "but the Fed will remain cautious given the lingering upside risks."

Diverging from Market Expectations

The forecast places Julius Baer on the dovish end of the spectrum compared to broader market expectations. While traders currently price in only two rate cuts in 2025, Kohl’s outlook suggests a faster and more decisive pivot. Morningstar analysts, for instance, see a gradual reduction cycle extending through 2027, with cumulative cuts totaling around 2 percentage points.

This discrepancy underscores the uncertainty surrounding inflation’s trajectory and the Fed’s balancing act between supporting growth and preventing a resurgence in price pressures. "The Fed doesn’t want to overcorrect," said one fixed-income strategist familiar with the matter. "If inflation plateaus above target, they’ll likely proceed more slowly than some expect."

Implications for Borrowers and Investors

A faster easing cycle would provide relief to borrowers, lowering mortgage rates and corporate financing costs. However, savers and fixed-income investors could face diminished returns, while a weaker dollar might ripple through emerging markets. Equity markets, meanwhile, could see renewed momentum if lower rates sustain valuation multiples.

Julius Baer’s projection hinges on inflation continuing to cool without a sharp economic downturn—a scenario that remains fluid. For now, the bank’s stance signals confidence that the worst of the price surge is behind us, even if the path back to 2% proves slower than hoped.