UBS Sees Rate Hike Odds Rise, Names Top Investment Picks

UBS has identified three places for investors to put their money as volatility builds around the Federal Reserve's September decision. The bank's strategists, led by Mark Haefele, argue that the key question is not whether the Fed hikes or holds rates, but the conditions it acts against.

The CME FedWatch tool currently puts the probability of a September rate hike at 60.4%, with odds reaching 70.9% by October and 85.8% by December. This increased likelihood of a rate hike has led to market repricing, with traders reevaluating their expectations for the Federal Open Market Committee's decision on September 15-16.

UBS strategists separate a Fed response driven by solid economic growth from one driven by sticky inflation, arguing that this distinction matters more than the next policy meeting. They believe that investors should focus on how the Fed responds to US economic strength versus inflation problems.