Despite uncertainty surrounding the Federal Reserve's leadership transition, UBS believes the U.S. central bank remains on track to cut interest rates later this year, with cooling inflation and labor market softness clearing the path for further easing.

Kevin Warsh, President Trump's nominee to replace Fed Chair Jerome Powell when his term expires next month, appeared before the Senate Banking Committee on Tuesday, reaffirming his commitment to monetary policy independence. 

Warsh pushed back on suggestions he would act as a proxy for the White House, and called for a "regime change" in the Fed's approach, including a new inflation framework and more internal debate. He also indicated he may not continue holding a press conference after every FOMC meeting, saying "truth-seeking is more important than repetition."

On inflation, UBS notes that March price data showed underlying inflation was milder than markets had expected. The firm's view is that "cooling sequential core inflation in the coming months amid fading tariff effects should open the door to further rate cuts by the US central bank."

Labor market conditions add to the case for easing. UBS points to lower average weekly hours and decelerating wage growth as signs of demand-side weakness, warning that a further fall in labor demand could push the unemployment rate sharply higher.

“With the composition of the Fed board likely to become more dovish later this year, and a large majority of policymakers still favoring returning the policy rate closer to 3%, we believe the current market pricing of Fed policy is too hawkish,” UBS stated.

The firm maintains its call for an additional 50 basis points of cuts toward year-end, adding that "further easing should support equities and high-quality bonds over the medium term."