UBS Global Wealth Management pushed its first expected Federal Reserve rate cut into 2027, arguing that policymakers are unlikely to soften their message at this week’s meeting even after a US-Iran agreement eased pressure on oil markets.
The wealth manager now expects two 25-basis-point reductions in March and June next year, instead of cuts in December 2026 and March 2027.
The shift comes before Kevin Warsh’s first policy decision as Fed chair, with investors looking for signs of how strongly the central bank still sees inflation as a threat.
Warsh faces an early credibility test
The Fed is widely expected to leave interest rates unchanged on Wednesday, keeping the target range at 3.50% to 3.75%.
The decision itself is unlikely to surprise markets. The statement, the dot plot and Warsh’s first press conference will matter far more.
UBS said in a note that it expects “a more hawkish tone” from both the Fed’s statement and its rate projections, despite Warsh’s previously dovish public remarks.
That matters because investors are trying to judge whether the new chair will lean towards growth support or focus on rebuilding the Fed’s inflation credibility.
Recent energy-price swings have made that choice more difficult.
Iran deal may not shift central banks yet
The US-Iran preliminary agreement has improved market sentiment and helped push oil prices lower.
But UBS said central banks are unlikely to make a quick pivot towards easier language while the durability of the deal remains uncertain.
The concern is that an energy shock may still feed into wider prices if shipping through the Strait of Hormuz does not normalise quickly.
Lower oil helps, but it does not immediately remove the risk of second-round inflation effects.
UBS said leading central banks were likely to remain cautious while incoming data show whether the recent energy shock is fading or spreading through the economy.
That view is shared more broadly across Wall Street.
Goldman Sachs Research said earlier this month that it no longer expects the Fed to cut rates this year, moving its own easing forecast deeper into 2027.
Markets still price some tightening risk
Traders have also moved away from the idea that rate cuts are close.
CME FedWatch pricing showed markets assigning about a 42% chance of a 25-basis-point Fed hike in December.
That pricing underlines how much the debate has changed. Earlier this year, investors were focused on when the Fed might ease.
The question now is whether inflation will force policymakers to keep the door open to further tightening.
For UBS, the answer is clear. The bar for a dovish turn remains high, and this week’s meeting may reinforce that message rather than challenge it.
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