UBS Now Expects Two Fed Rate Hikes in 2026, Reversing Previous Forecast

Alt text: UBS expects the Federal Reserve to raise interest rates by 25 basis points in September and December 2026.

UBS Global Wealth Management now expects the U.S. Federal Reserve to raise interest rates by 25 basis points in both September and December 2026, reversing its previous forecast that the central bank would make no policy changes this year.

The revised outlook was reported by Whale Insider in a post on X and is consistent with a UBS Global Wealth Management research note published after stronger-than-expected U.S. employment data. UBS said hawkish Federal Reserve communication, rising inflation risks and resilient labor-market conditions were sufficient to change its earlier call.

Strong Jobs Data Changes UBS Outlook

The change follows the latest U.S. employment report, which showed employers added 162,000 jobs in August. The figure was well above expectations, while the unemployment rate remained at 4.1%.

UBS said the employment data reinforced its assessment that economic activity and labor demand remain firm enough to warrant a more restrictive monetary-policy outlook.

The wealth manager also pointed to comments from Fed Chair Kevin Warsh at the Jackson Hole symposium. UBS characterized Warsh's communication as hawkish, while also citing increased inflation risks associated with supply bottlenecks.

The combination of stronger employment and persistent inflation concerns has prompted UBS to abandon its previous base case of unchanged interest rates through the end of 2026.

September Rate Decision Comes Into Focus

Under UBS's revised forecast, the Fed would deliver two quarter-point increases this year, one in September and another in December. The moves would represent a significant change from the institution's earlier expectation of no policy change.

Financial markets have also increased the probability assigned to a September hike. Reuters reported that CME's FedWatch tool showed traders pricing in roughly a 58% chance of a 25-basis-point increase at the Fed's Sept. 15-16 meeting, up from 52% on Thursday.

The market outlook remains sensitive to incoming economic data, however. Fed Governor Christopher Waller has indicated that he would support keeping rates unchanged if upcoming figures show inflation pressures continuing to ease.

Inflation Data Becomes the Next Test

UBS said investor attention is now shifting toward the August consumer price index report, scheduled for Sept. 11, just days before the Federal Reserve's Sept. 15-16 policy meeting. The report represents the final major inflation release before the decision.

UBS currently expects the federal funds target range to rise from 3.50%-3.75% to 4.00%-4.25% if both projected increases are delivered. The forecast marks a notable reversal in the bank's assessment of U.S. monetary policy for the remainder of 2026.

writer: Ethan Collins
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