Key facts
- UBS now forecasts two 25 basis point interest rate hikes by the Federal Reserve in 2026.
- This represents a change from UBS's prior expectation of no rate changes in 2026.
- The revision was prompted by a stronger-than-expected U.S. jobs report for August.
- The August jobs report showed 162,000 jobs added and an unemployment rate of 4.1%.
- Hawkish commentary from Fed officials and rising inflation risks also contributed to the forecast change.
UBS has revised its interest rate forecast, now anticipating two 25 basis point hikes by the Federal Reserve in 2026. This marks a significant shift from its previous expectation of no policy changes this year. The brokerage cited a stronger-than-expected U.S. jobs report for August, which indicated a resilient labor market, as a key driver for this change.
According to the note from UBS Global Wealth Management, hawkish communication, particularly Fed Chair Kevin Warsh's Jackson Hole speech, coupled with rising inflation risks from supply bottlenecks and robust labor data, prompted the adjustment. The August employment report revealed that U.S. employers added 162,000 jobs, surpassing expectations, while the unemployment rate remained steady at 4.1%.
Following the release of the employment data, other financial institutions like Citigroup and Macquarie also updated their interest rate forecasts. Market participants are now pricing in approximately a 58% chance of a quarter-percentage-point rate hike at the Federal Reserve's upcoming September 15-16 meeting, an increase from 52% the previous day, according to CME's FedWatch tool. Fed Governor Christopher Waller indicated support for holding rates steady if upcoming data continues to show easing inflation pressures.