UBS reverses course, now expects two more Fed rate hikes in 2026

UBS now expects the Federal Reserve to raise interest rates by 25 basis points in both September and December 2026, reversing its earlier forecast for no further changes this year. The shift follows an August jobs report showing 162,000 jobs added and a 4.1% unemployment rate, along with hawkish signals from Fed Chair Kevin Warsh and persistent inflation risks. The outlook has prompted markets to reassess the possibility of continued tightening rather than an extended pause, with upcoming inflation, employment data and FOMC communications likely to determine the path. UBS advises investors to prepare for volatility and favor assets that can withstand higher rates, including medium- to long-term Treasuries if inflation expectations cool, as well as utilities, infrastructure and selected growth exposure supported by AI investment. Rate-sensitive, duration-heavy holdings and highly valued growth assets remain vulnerable if inflation-driven hikes trigger earnings downgrades and broader multiple compression.