UBS Expects Two Rate Hikes from the Federal Reserve Before Year's End

UBS analysts expect the Federal Reserve to increase interest rates twice before the end of 2026, according to their recent statement. This prediction comes after a speech by Fed Chair Kevin Warsh at the Jackson Hole event, where he emphasized that policymakers must be confident that underlying inflation is moving down to the Fed's 2% objective 'clearly and at sufficient speed.' Warsh also stressed that interest rates are the primary tool for monetary policy.

UBS analysts Jonathan Pingle and Abigail Watt argue that all of the points in Warsh's statements supported rate hikes. They note that their current forecast for two upcoming quarter-point rate hikes over the rest of 2026 is 'not high conviction' and dependent on incoming data, citing a potential downside surprise in the August consumer price index.

The analysts also highlight that markets are currently pricing in about a 60% chance of a 25-basis point rate increase this month, following recent job growth data. They describe the September decision as a 'close call,' with Fed Chair Warsh weighing various factors including market pricing and his colleagues' views.