As the Federal Reserve prepares to meet again in September and December, UBS has changed its rate call, expecting the central bank to raise interest rates. According to Jonathan Pingle, Chief US economist at UBS, the Fed is likely to increase the benchmark rate by 25 basis points to a range of 3.75-4.00% on September 16 and then again by another 25bp on December 9. This shift in expectation comes after Chair Jerome Powell’s speech at Jackson Hole and the strong payroll report released last Friday.

Pingle notes that Warsh’s framework, as outlined in his Jackson Hole speech, is the most hawkish since the creation of the Federal Open Market Committee (FOMC) in 1933. The key principles highlighted by Warsh emphasize the importance of headline Personal Consumption Expenditures (PCE), rather than CPI or any trimmed variation. With incoming data supporting these principles, Pingle believes that Warsh has “little choice but to put his monetary policy where his mouth is.”

However, there is a disconnect between the Fed’s current stance and market expectations. The problem, as Pingle sees it, is that the principles and data settings applied when Warsh took office suggest that rates should have been raised in June or July, rather than waiting until September and December.

Despite this difference in opinion, UBS expects interest rates to remain steady through the first half of 2027 before being lowered by 25bp in June. The remainder of next year is expected to see rates held at 3.75-4.00%.

This shift in Fed expectations has implications for borrowers and investors alike. For those looking to take out loans or make investments, the rising interest rates could lead to higher costs and reduced purchasing power. On the other hand, savers may see their returns increase as interest rates climb.