UBS Forecasts Two Quarter-Point Rate Hikes in September and December

UBS has revised its forecast for Federal Reserve interest rate hikes, now expecting two quarter-point increases in September and December. This change comes after strong jobs data and hawkish signals from Fed Chair Kevin Warsh.

The bank's chief investment office daily note on September 7 outlined the new forecast, which takes into account the federal funds target range moving from 3.50-3.75% to 4.00-4.25%. This is a significant shift from UBS's previous base case of no rate change in 2026.

UBS cites August payrolls rising by 162,000, exceeding consensus expectations, as well as July's personal consumption expenditures index running at 3.7% year-over-year growth. The bank also points to worsening supplier-delivery times in ISM and PMI surveys as an upside inflation risk.

Fed Chair Warsh has stated that underlying inflation must be moving towards the 2% objective 'clearly and at sufficient speed.' UBS's Reiman told Bloomberg television that the US economy can withstand two rate hikes, which aligns with the bank's forecast.