UBS Forecasts Fed Rate Hike This Week
UBS Securities projects the Federal Reserve will raise interest rates by 25 basis points at its upcoming meeting. The bank expects the central bank to signal additional tightening later in 2026.
UBS Securities expects the Federal Reserve to raise its benchmark lending rate by 25 basis points at this week's policy meeting. The bank anticipates that the FOMC's latest dot plot will signal a second rate hike later in 2026. This prediction marks a significant shift after five consecutive decisions to hold rates steady.
The Federal Open Market Committee begins its two-day session on Tuesday. A decision is due on Wednesday, alongside the release of the Summary of Economic Projections. UBS notes that recent consumer and producer price data failed to improve the inflation outlook.
Market pricing reflects high hike probability
Market data indicates a 90% probability of a 25 basis point increase. This assessment is based on the CME FedWatch tool. The remaining odds suggest a central bank pause.
UBS economists project a 10-2 vote in favor of tightening. They expect Governors Christopher Waller and Michelle Bowman to vote for a hold. Jonathan Pingle, a UBS economist, notes that risks tilt toward two hikes this year.
Pingle stated that the committee is split on whether one or two hikes are appropriate. He does not expect Chairman Kevin Warsh to provide detailed future policy signals. However, a rate hike would support Warsh's hawkish rhetoric.
Inflation data drives policy shift
Consumer and producer prices hit three-month highs in August. Energy costs were the primary driver of this increase. UBS argues that these figures failed to show the desired disinflationary trend.
Chairman Warsh emphasized price stability in his recent Jackson Hole speech. He noted that the US employment front remains strong. Waller indicated support for holding rates if disinflation continues.
Political timing influences rate decision
US midterm elections are scheduled for November. UBS economists believe the proximity of the October meeting to these elections makes it an unlikely time for a hike. They suggest raising rates in September avoids the political risk of an October increase.
Eighteen FOMC members are expected to submit policy dots. Chairman Warsh is not expected to submit his projections. UBS predicts that ten participants will assume two or more hikes are appropriate for 2026.
