UBS Expects the Fed to Raise Rates Twice More This Year

UBS expects the Federal Reserve to raise interest rates two more times before the end of 2026. The forecast includes a 25-basis-point hike at the September meeting and another move of the same size in December, as Fed Chair Kevin Warsh continues to emphasize the need to bring inflation firmly under control.

UBS analysts, including Jonathan Pingle and Abigail Watt, said Warsh’s remarks at the Fed’s annual Jackson Hole gathering sent a broadly hawkish signal. Warsh stressed that policymakers must be confident underlying inflation is moving clearly and quickly enough toward the Fed’s 2% target. If that progress is not evident, he said, the central bank still has more work to do.

Warsh also underlined that interest rates remain the Fed’s primary monetary policy tool. UBS believes those comments have put Warsh’s credibility in focus, increasing expectations that his hawkish rhetoric will eventually be reflected in actual policy decisions.

Still, UBS acknowledged that its forecast for two additional rate hikes carries limited conviction and remains highly dependent on incoming economic data. A weaker-than-expected August Consumer Price Index reading this week, for example, could significantly alter the outlook and reduce the need for further monetary tightening.

Markets are currently pricing in around a 60% chance of a 25-basis-point rate hike in September. Expectations strengthened after recent U.S. employment data showed job creation in August was far stronger than anticipated. A resilient labor market gives the Fed more room to raise borrowing costs without immediately threatening employment growth.

UBS said the September decision remains a close call. Warsh is expected to weigh inflation and labor market conditions alongside market pricing, changes in financial conditions since the previous meeting, and the views of other Fed officials. For financial markets, this week’s U.S. inflation data will be crucial. Persistent inflation could reinforce expectations for two more rate hikes, support the U.S. dollar, and pressure gold, while softer inflation could weaken the tightening outlook and provide room for non-yielding assets such as gold to recover.(mrv)

Source : Newsmaker.id