UBS expects the Federal Reserve to raise interest rates twice before the end of 2026, with quarter-point increases at the September and December meetings. The bank’s analysts, including Jonathan Pingle and Abigail Watt, said the forecast is not high conviction and remains dependent on incoming data.
The view is supported by remarks from Fed Chair Kevin Warsh at the Jackson Hole event, UBS said. Warsh said policymakers “must be confident” that underlying inflation is moving down to the Fed’s 2% objective “clearly and at sufficient speed,” and that if inflation is not moving down sufficiently, “we have work to do.”
UBS analysts said Warsh “threw down the gauntlet” and, with his credibility on the line, “we expect he has little choice but to put his monetary policy where his mouth is.” They added that the September decision is a close call, partly because Warsh is expected to weigh the principles he laid out against market pricing, the movement of rates between meetings, and the views of his colleagues.
Markets are pricing about a 60% probability of a 25-basis point rate increase during the month. UBS noted that a downside surprise in the August consumer price index could undo its assessment, while data from the previous week showed the U.S. economy added significantly more jobs than anticipated in August.
