UBS Sees Two Fed Hikes in 2026 Amid Strong US Jobs Report
UBS has revised its forecast for Federal Reserve interest rate hikes in 2026. The bank now predicts two 25-basis-point increases, one in September and another in December. This change comes after a stronger-than-expected August jobs report showed US employers added 162,000 jobs, exceeding forecasts of roughly 55,000.
The unemployment rate remained at 4.1%, contributing to a rise in market expectations for a September rate hike. Financial markets were pricing in about a 60.4% probability of a 25-basis-point increase at the Fed's September 15-16 meeting, according to CME's FedWatch tool.
UBS said stronger labor data, alongside hawkish comments from Fed Chair Kevin Warsh, were enough to change its rate forecast. However, the bank noted that the investment implications would depend on the reason behind any Fed tightening. A rate hike driven by stronger economic growth would have different consequences from one prompted by persistent inflation and weaker growth.
Despite the possibility of short-term volatility from higher yields, UBS remains positive on global equities. The bank said stronger rates would not necessarily outweigh medium-term factors such as artificial intelligence-related capital spending, resilient economic activity, and broad earnings growth.