UBS Global Wealth Management expects the US Federal Reserve to raise interest rates again in December and March 2027 as persistent inflation pressures strengthen expectations that monetary policy will remain restrictive into next year.
The firm forecasts a 25-basis-point increase in December, followed by another quarter-point hike in March 2027. The projections suggest that the central bank may continue raising borrowing costs as it seeks to contain inflation and maintain price stability.
The outlook follows the Federal Reserve’s decision to increase interest rates by 25 basis points in September, marking its first rate hike since 2023. Stronger-than-expected inflation in September has reinforced concerns that price pressures may take longer to ease, potentially requiring policymakers to keep interest rates elevated for an extended period.
UBS economist Andrew Dubinsky said the combination of rising goods prices and persistent inflation in the services sector supports expectations of higher interest rates for longer.
The assessment reflects broader concerns that inflation has remained more persistent than anticipated, complicating efforts by central banks to ease monetary policy. Several central banks have indicated that restrictive financial conditions may need to remain in place as they respond to ongoing price pressures and economic uncertainty.
UBS identified several factors that could influence the Federal Reserve’s decisions in the coming months. These include demand associated with artificial intelligence, supply disruptions linked to tensions in the Middle East and uncertainty surrounding international trade policies.
According to the firm, extending the tightening cycle could help keep inflation expectations anchored while inflation remains close to 3% amid multiple economic shocks.
The Federal Reserve is scheduled to hold its next monetary policy meeting on October 27 and 28. Investors will be watching for signals about the central bank’s future decisions as policymakers assess inflation and other economic indicators.
Market expectations for further interest rate increases have also strengthened following the latest consumer price index report. According to CME FedWatch data, interest rate futures indicate a 27% probability of a rate hike at the October meeting, compared with 21.6% before the inflation figures were released.
The probability of a December rate increase stands at 89.5%, suggesting that investors increasingly expect the Federal Reserve to raise borrowing costs again before the end of the year.
UBS’s forecast points to the possibility of continued monetary tightening into 2027 if inflation remains elevated. However, the Federal Reserve’s actual decisions will depend on incoming economic data and how inflation develops in the coming months.
Goodness Anunobi
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