UBS Adjusts Outlook, Expects Two Rate Hikes by the Federal Reserve in 2026

UBS Wealth Management has released its outlook, predicting that the Federal Reserve will raise interest rates twice in 2026, with increases of 25 basis points each in September and December. This would raise the target range for the federal funds rate from 3.50-3.75% to 4.00-4.25%. Data released last Friday showed that U.S. job growth accelerated, with July's Personal Consumption Expenditures (PCE) inflation rising 3.7% year-on-year, exceeding expectations and pushing the Fed's stance to be more hawkish. Currently, the market-implied probability of a rate hike in September has risen from about 50% to approximately 60%. UBS had previously expected rates to remain unchanged throughout 2026, but hawkish signals and inflationary risks prompted an adjustment to this view. The impact of two rate hikes on economic growth is expected to be moderate, and UBS still anticipates that economic growth will remain near trend levels. Investors should review their current asset allocation, including buying stocks on dips, seizing opportunities in high-quality bonds with attractive yields in the medium to long term, reducing excessive dollar positions on highs, and increasing gold holdings during price corrections.

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