US Stock Market: UBS pushes Fed rate cut expectations to 2027 on hawkish policy outlook

UBS Global Wealth Management has pushed back its expectations for U.S. Federal Reserve interest rate cuts, forecasting that the central bank will keep rates unchanged through 2026 and begin easing only in 2027, according to a note cited by Reuters.

The wealth manager now expects the Fed to deliver two 25-basis-point rate cuts in March and June 2027. Previously, UBS had projected reductions in December 2026 and March 2027.

The revised outlook comes ahead of the Federal Reserve's policy decision on Wednesday, the first meeting under new Chair Kevin Warsh. Markets broadly expect policymakers to leave interest rates unchanged.

According to Reuters, UBS anticipates a more hawkish tone from the central bank than markets may currently be pricing in. The firm expects policymakers to reinforce their commitment to controlling inflation through both the policy statement and the updated "dot plot," which outlines officials' projections for future interest rates.

The Fed meeting follows an announcement by U.S. President Donald Trump that the United States and Iran had reached a preliminary agreement aimed at ending their conflict. The development has eased concerns in global financial markets and reduced immediate fears of a prolonged disruption to energy supplies.

However, Reuters reported that UBS believes major central banks are unlikely to quickly shift toward a more accommodative stance despite the apparent easing of geopolitical tensions. Policymakers are expected to remain cautious as they assess whether recent energy-market volatility could generate broader inflationary pressures in the months ahead.

The week is packed with key central bank meetings, including the Bank of England, adding to investor focus on the global interest-rate outlook.

Most major brokerages now expect the Federal Reserve to keep rates unchanged through the remainder of the year. Citigroup and Wells Fargo remain among the few institutions that continue to anticipate rate cuts before year-end.

Meanwhile, interest-rate futures indicate that traders see a growing possibility of tighter monetary policy. According to the CME FedWatch Tool, markets are pricing in roughly a 42% probability of a 25-basis-point rate increase by December.

The evolving expectations underscore the uncertainty surrounding the U.S. inflation outlook and the path of monetary policy as central banks balance growth concerns against persistent price pressures, Reuters reported.