UBS Sees Two Rate Hikes Before Year-End Amid Fed's Hawkish Stance

UBS analysts are predicting that the Federal Reserve will raise interest rates twice before the end of the year, according to their latest forecast. This prediction comes after a recent speech by Fed Chair Kevin Warsh at the Jackson Hole event, where he emphasized the importance of reducing underlying inflation to 2% 'clearly and at sufficient speed'.

In his speech, Warsh stated that policymakers must be confident in achieving this goal, and if not, they have 'work to do.' UBS analysts argue that Warsh's statements suggest a high likelihood of rate hikes, with their current forecast indicating two quarter-point increases over the remainder of 2026.

The analysts note that their forecast is not 'high conviction' and depends on incoming data, particularly this week's August consumer price index. A downside surprise in the CPI could potentially undo their assessment, they warn. Markets are currently pricing in a 60% chance of a rate increase this month.