According to strategists at UBS, the US Federal Reserve could raise its policy rate twice before year‑end, at the September and December meetings. The revision led by Jonathan Pingle and Abigail Watt reflects the hawkish signals sent by Fed Chair Kevin Warsh at the Jackson Hole symposium and a strong August jobs report. The strategists say Warsh has effectively challenged the market. And with his credibility on the line, the chair may have little choice but to back his rhetoric with actual tightening.
The rethink followed Warsh’s warning that policymakers must be “confident” that core inflation will return to the 2% target “clearly and at a sufficient speed.” Otherwise, they will “have work to do,” he added. The Fed chair also reiterated that interest rates remain the central bank’s primary policy tool. UBS cautions, however, that its base case of two 25‑basis‑point hikes is not a sure thing and remains data‑dependent, as an unwelcome surprise in the August CPI report could upend the outlook.
Futures currently put the odds of a quarter‑point move in September at roughly 60%. That pricing was supported by last week’s payrolls data. The report showed 162,000 jobs added, well above consensus, confirming the resilience of the US labor market. UBS believes the September decision will pose a difficult trade‑off for the chair, who must reconcile stated policy priorities with market pricing, between‑meeting moves in yields, and differing views among FOMC colleagues.
