UBS analysts now expect the Federal Reserve to raise interest rates twice before the end of 2026.
The forecast follows recent comments from Fed Chair Kevin Warsh and stronger-than-expected US employment data, both of which have strengthened the case for tighter monetary policy.
UBS Sees Two More Fed Rate Hikes in 2026
UBS analysts, including Jonathan Pingle and Abigail Watt, said Warsh’s recent remarks at the Federal Reserve’s Jackson Hole event were broadly supportive of further interest rate increases.
Warsh emphasized that policymakers need to be confident that underlying inflation is moving clearly and quickly toward the Fed’s 2% target.
He also indicated that more policy action may be required if inflation does not continue to decline at a sufficient pace.
In addition, Warsh stressed that interest rates remain the Federal Reserve’s main tool for controlling monetary policy.
Warsh’s Comments Strengthen the Hawkish Case
UBS interpreted Warsh’s comments as a strong signal that he may be prepared to support further tightening.
The analysts argued that his credibility could now depend on whether future policy decisions match the hawkish tone of his recent statements.
As a result, UBS currently expects the Fed to deliver two 25-basis-point rate hikes before the end of the year.
The first increase is projected for the September meeting, while the second could come in December.
UBS Says Forecast Remains Data-Dependent
However, UBS stressed that its outlook is not based on high conviction.
The analysts said the forecast could change quickly depending on upcoming US economic data.
This week’s August Consumer Price Index report will be especially important.
A weaker-than-expected inflation reading could significantly reduce the case for another rate increase and potentially change UBS’s outlook.
Markets Price 60% Chance of September Fed Hike
Financial markets are currently pricing in around a 60% probability of a 25-basis-point rate hike at the Fed’s September meeting.
Recent employment data have helped support those expectations.
The US economy added substantially more jobs than economists expected in August, suggesting that the labor market remains resilient.
A strong jobs market can give the Federal Reserve more flexibility to raise borrowing costs without immediately creating severe pressure on employment.
Strong Jobs Data Supports Higher Rates
Higher interest rates can slow economic activity and potentially weaken job creation.
However, continued strength in employment may allow the Fed to focus more heavily on inflation.
This could increase the likelihood that policymakers choose to raise rates again if price pressures remain elevated.
UBS analysts nevertheless described the September decision as a close call.
September Fed Decision Could Be Closely Contested
According to UBS, Warsh will likely consider several factors before supporting another rate increase.
These include the policy principles he outlined at Jackson Hole, current market expectations and how financial conditions have changed since the previous Fed meeting.
He is also expected to consider the arguments and policy views of other Federal Reserve officials.
For now, UBS expects two additional Fed rate hikes before the end of 2026.
However, upcoming inflation data could still significantly change the outlook before the central bank’s next policy decision.
