UBS Expects Two Federal Reserve Rate Hikes Before End of 2026

UBS's Kurt Reiman now expects two Federal Reserve rate hikes this year, reversing his previous forecast that rates would remain unchanged. The firm's Head of Fixed Income Americas predicts the central bank will raise interest rates twice before the end of 2026.

The call is striking because UBS had previously expected the Fed to either hold steady or ease later in 2026. Instead, the firm now sees two 25-basis-point hikes landing at the September 15-16 meeting and again in December, which would push the federal funds target range up to 4.00-4.25%.

The change in forecast comes after strong August nonfarm payrolls data, which came in at 162,000, roughly triple the consensus estimate of around 55,000 to 56,000. The unemployment rate also held steady at 4.1% in August.

Inflation remains a concern as well, with July's Personal Consumption Expenditures index clocking in at 3.7% year-over-year, above the Fed's 2% target. This gives Chair Kevin Warsh plenty of cover to stay hawkish and supports Reiman's rate hike predictions.

UBS has raised its two-year Treasury yield forecast by a full 100 basis points, targeting 4.25% by June 2027. The 10-year yield forecast got a 40-basis-point bump to 4.5% over the same period.