UBS now expects the Federal Reserve to raise interest rates twice in 2026, reversing its previous forecast of no policy changes, after a stronger-than-expected August US jobs report reinforced confidence in economic resilience. The Swiss bank sees 25-basis-point rate hikes at the Fed's September and December meetings.
The labor data showed US employers added 162,000 jobs in August, far above consensus estimates of about 55,000, while the unemployment rate held at 4.1%. That was the strongest monthly employment gain since March and pushed market pricing for a September move higher. According to the CME FedWatch tool, the probability of a 25-basis-point increase at the Fed's September 15-16 meeting rose to about 60.4%, up from 59.4% on Friday.
UBS pointed to the resilient labor market, hawkish commentary from Fed Chair Kevin Warsh at the Jackson Hole symposium, and rising inflation risks tied to supply bottlenecks as reasons for its revised outlook. However, strategists cautioned that the investment impact depends on the driver of tightening. "A Fed responding to US economic strength is very different from a Fed responding to inflation problems," UBS strategists said.
The bank remains positive on global equities despite potential short-term volatility from higher yields, favoring sectors tied to artificial intelligence, power, resources, and longevity themes. In fixed income, UBS no longer recommends locking in yields in short- to medium-duration bonds as a cash alternative, instead seeing opportunities in medium- to longer-duration bonds after the recent rise in yields.
A more hawkish Fed could support the US dollar through stronger capital flows and relative economic performance. Gold may face near-term pressure from higher real rates and a stronger dollar, but UBS views bullion as a portfolio hedge and diversifier amid persistent inflation, geopolitical uncertainty, and concerns about fiscal and monetary credibility.
