UBS Global Wealth Management has reversed its interest-rate forecast for the United States, now expecting the Federal Reserve to raise the federal funds rate by 25 basis points at both the September and December 2026 meetings. The shift, which would lift the target range to 4.00-4.25 percent from the current 3.50-3.75 percent, marks a dramatic departure from the bank's previous call for unchanged rates through year-end.
The revision, reported by InvestingLive on September 7, identifies three drivers behind the reversal. First, Fed Chair Kevin Warsh struck a firmly hawkish tone at the Jackson Hole symposium on August 28, signaling that the central bank remains open to further tightening despite slowing growth. Second, UBS flagged persistent supply-side inflation risks, including shipping disruptions and commodity-price pressures, that could keep price growth elevated in the coming quarters. Third, and most immediately, the August employment report released on September 5 showed the economy adding 162,000 nonfarm payroll jobs, far above the consensus forecast of approximately 56,000, while the unemployment rate held steady at 4.1 percent, according to the Bureau of Labor Statistics.
Why the August jobs data changed the calculus
The strength of the August payrolls figure is central to UBS's revised call. The 162,000 gain was more than double the average monthly addition over the prior 12 months, which stood at just 31,000, according to the Bureau of Labor Statistics. Employment rose broadly across food services, drinking places, and local government education, while the information sector recorded losses. The participation rate ticked up to 61.6 percent from 61.4 percent in July, suggesting that the labor-market recovery is drawing more workers back into the force rather than simply reflecting tighter matching.
For UBS, the data closes the door on the scenario in which a weakening labor market would give the Fed cover to pause. Instead, the combination of resilient hiring and sticky inflation -- the personal consumption expenditures core index is running at 3.7 percent year over year, well above the 2 percent target -- creates a case for the central bank to move sooner rather than later.
What it means for markets and the September FOMC
Market pricing has shifted in the same direction. The implied probability of a 25-basis-point hike at the September 15-16 FOMC meeting has risen to roughly 60 percent, according to CME FedWatch data cited by InvestingLive. Two-year Treasury yields have climbed in tandem, reflecting repricing across the short end of the curve.
Yet UBS is not calling for an aggressive tightening cycle. The bank's base case remains that the Fed will hike only twice before pausing, and its equity strategists argue that the bull case for stocks is intact. In UBS's view, a measured tightening path, if accompanied by continued earnings growth, is unlikely to derail the broader equity rally. The key risk, the bank notes, is that inflation proves more stubborn than expected, forcing the Fed to deliver additional moves beyond the two currently forecast.
What to watch
Two data releases in the coming days will shape expectations. The August consumer price index, due on September 11, will test whether the inflation picture has cooled further or remained sticky. The FOMC's own projections and Warsh's post-meeting press conference on September 16 will reveal whether the committee's majority shares UBS's view that the labor market can absorb higher borrowing costs without a sharp slowdown.
For now, UBS's reversal adds to a growing chorus of major financial institutions -- including Barclays, which made a similar call on August 31 -- arguing that the era of rate stability is ending and that the Fed's next move is more likely to be a hike than a cut.
Sources
- InvestingLive -- UBS: two Fed hikes incoming, but equity bull case still intact -- https://investinglive.com/stocks/ubs-two-fed-hikes-incoming-but-equity-bull-case-still-intact/
- Crypto Briefing -- UBS projects Fed rate hikes in September and December 2026 -- https://cryptobriefing.com/ubs-projects-fed-rate-hikes-in-september-and-december-2026/
- U.S. Bureau of Labor Statistics -- Employment Situation Summary, August 2026 -- https://www.bls.gov/news.release/empsit.nr0.htm
