UBS expects the Fed to lift rates twice before the end of the year. Here’s why.

UBS analysts predict the Federal Reserve will increase interest rates twice before the end of 2026, following remarks from Chair Kevin Warsh and strong employment data. In his speech at the Fed's Jackson Hole event, Warsh emphasized the importance of confidence that inflation is falling to the 2% target and highlighted interest rates as the main tool for monetary policy.

UBS analysts Jonathan Pingle and Abigail Watt believe Warsh's statements support rate hikes, particularly the need for clear and sufficient speed in reducing inflation. The analysts predict two quarter-point rate increases, one in September and another in December, but note that their forecast is not very confident and depends on new data.

They also mention that a poor showing in the August consumer price index could change their assessment. Currently, markets have a 60% chance of a 25-basis point rate hike this month. While higher borrowing costs could negatively impact job growth, a robust labor market can strengthen the case for a rate increase. UBS sees the September decision as a close call, as it will depend on Warsh weighing his principles, market pricing, and his colleagues' views.