UBS has revised its timetable for when the Federal Reserve will begin easing policy, now forecasting the central bank's first interest-rate cut in December 2026 rather than in September. The bank said ongoing upward pressure in goods prices and unexpectedly steady growth leave the Fed room to postpone easing.
Economist Andrew Dubinsky highlighted the specific conditions UBS believes would be necessary to justify a September move: sustained disinflation in core goods prices and a reduction in supply-side uncertainty. According to Dubinsky, those conditions have not been met.
UBS points to April data showing core personal consumption expenditure goods inflation running near 0.3% month-over-month. The bank notes that while tariff-sensitive categories are seeing disinflation, that improvement is being offset by sharply higher pricing in AI-linked software, which UBS reports is increasing at roughly 5% month-over-month and about 14% year-over-year.
Compounding the picture, the New York Fed's Global Supply Chain Pressure Index has moved higher and is approaching levels last seen in early 2022. UBS interpreted that rise as an additional source of supply-side uncertainty that weakens the case for near-term rate cuts.
On the demand side, UBS cited solid private domestic final sales growth of 2.5% in the first quarter and steady unemployment as factors that reduce the urgency for the Fed to ease policy. Taken together, the bank said, those elements leave inflation as the dominant constraint on monetary easing decisions.
Reflecting these assessments, UBS now expects two rate reductions: one in December 2026 and a second in March 2027. The bank projects the federal funds rate will be in a 3.00%-3.25% range by the first quarter of 2027.
UBS also noted remarks from Fed Governor Christopher Waller in April, in which he said "a clearer return toward somewhat normal conditions in the Strait of Hormuz would meaningfully improve the Fed's ability to look through recent supply shocks." UBS said it believes that view is widely shared across the Federal Open Market Committee.
Finally, UBS addressed recent market chatter about a possible rate hike, saying the threshold for tightening remains high. The bank reiterated that, in its view, the next policy move from the Fed is still likely to be a cut rather than an increase.
Clear summary
UBS has delayed its expectation for the Fed's first rate cut to December 2026 from September, citing persistent goods inflation—including rapid AI-related software pricing—rising supply-chain pressures and resilient domestic demand. The bank now projects two cuts, in December 2026 and March 2027, lowering the federal funds rate to 3.00%-3.25% by Q1 2027.