• UBS anticipates FOMC minutes will reveal deep divisions among Fed officials on monetary policy
  • Despite hawkish rhetoric, the bank believes weakening economic data could support a 50 basis point cut in December
  • Recent government shutdown may limit availability of comprehensive economic data, complicating the Fed's decision-making process

UBS Group AG expects the upcoming release of Federal Reserve minutes to emphasize significant internal divisions within the Federal Open Market Committee, with some members maintaining a hawkish stance while others continue to support potential rate cuts, including a possible 50 basis point reduction in December.

According to analysis from the Swiss banking giant, officials like Atlanta Fed President Raphael Bostic and Kansas City Fed President Jeffrey Schmid remain cautious about cutting rates too quickly. However, dovish members including Governor Miran are still advocating for more aggressive easing. This policy split comes as the U.S. economy shows increasing signs of strain.

"The minutes will likely reflect the ongoing debate, but we don't believe the incoming data will be strong enough to halt growing support for a third rate cut this year," said a UBS strategist who asked not to be identified discussing internal forecasts. The bank points to soft holiday hiring indicators and rising layoff announcements as evidence of continued economic weakness that could push the Fed toward additional easing.

The recent government shutdown has further complicated the policy landscape, potentially limiting the availability of comprehensive economic data that Fed officials typically rely on for their decisions. This data gap could make the central bank more cautious in its approach, according to people familiar with UBS's thinking.

Despite the expected hawkish tone of the minutes, UBS maintains that underlying economic conditions—particularly in the labor market—continue to deteriorate. The bank's research team noted that several key indicators have surprised to the downside in recent weeks, though the full picture remains somewhat obscured by data collection disruptions.

Market participants will be closely watching for any shift in the committee's balance of opinions when the minutes are released Wednesday. Trading in fed funds futures currently prices in approximately a 65% chance of a rate cut at the December meeting, though that probability has fluctuated significantly in recent sessions.

UBS declined to provide additional comment when reached Tuesday morning. The bank's post-merger restructuring continues, with executives having recently reported achieving $9.1 billion in gross cost savings since 2022—about 70% of its targeted $13 billion by 2026.