A decline of 5% to 10% in the S&P 500 from current levels could prompt the U.S. Federal Reserve to consider cutting interest rates, according to analysts at UBS. The bank said in a recent note that such a drop may be enough to trigger policy support, even though inflation remains elevated and Federal Reserve Chair Jerome Powell has signaled patience on rate adjustments.

UBS maintained a neutral stance on equities but noted that equity weakness of this magnitude could revive expectations of a so-called “Fed put,” a term describing central bank support that puts a floor under market declines. The bank said that a short-term rebound could follow such a policy shift.

The warning from UBS comes as investors weigh the impact of new U.S. tariffs introduced on April 2, which include reciprocal import duties of up to 46%. These measures raised the effective tariff rate to the highest level in more than 100 years and present a risk to companies with international supply chains.

UBS identified three potential backstops for financial markets: monetary easing, fiscal stimulus and de-escalation of trade policy. However, the firm noted that none of these developments appear imminent. Powell said last week the central bank will take a “wait and see” approach to assessing the inflationary impact of tariffs.

Budget reconciliation may take weeks or months to materialize, UBS said. The firm added that a meaningful equity rebound will likely depend on a clear shift in trade rhetoric away from the April 2 tariff levels. Absent that, the S&P 500 could fall closer to 4,000 as higher tariffs weigh on consumer and corporate spending.

UBS warned that further market declines could occur if trade tensions escalate, citing risks such as European retaliation, additional U.S. countermeasures and new tariffs targeting specific sectors.

The bank drew comparisons to 2018, when a roughly 15% drop in the S&P 500 preceded a dovish pivot by the Fed. However, UBS said a larger decline—possibly closer to 25%—may be required to provoke a similar response today due to stronger inflationary pressures.

Still, even a smaller drawdown of 5% to 10% could be enough to influence market sentiment and revive hopes for monetary easing, according to UBS.