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16 September 2026, 21:41 UTC Chief Investment Office GWM Investment Research

Expect another dose of Fed tightening Blog Andrew Dubinsky, US Economist, UBS Financial Services Inc. (UBS FS)

The Federal Open Market Committee (FOMC) raised the policy rate by 25bps, bringing the target range to 3.75%-4.00%. This was the first hike since July 2023 and ended the pause that began in December. It was only the second unanimous decision in the past year. The new interest-rate projections showed a median policy-rate projection of 4.1% for 2026, implying one more hike this year, with the 50bp cumulative increase persisting through 2027. The combination of a higher-for-longer policy- rate path and upward revisions to the inflation forecasts contributed to the meeting’s hawkish tone. However, as in June, Warsh distanced himself from the projections and continued to avoid providing forward guidance.

The rate projections showed broad support for further hikes, motivated by strong growth and elevated inflation over the next few years. The 2026 policy-rate projection shifted higher by 30bps, while the 2027 and 2028 projections each rose by 50bps. All but two participants supported a total of two or more hikes in 2026.

Broad support for two or more hikes in Fed projections Distribution of participant rate projections vs. end 2025

This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures at the end of the document.

Eight participants—nearly half—supported a third hike by 2027, although this group probably overrepresents hawkish regional presidents. The new median policy-rate path shows two hikes in 2026, which are reversed over 2028-2029. Despite the higher rate path, the growth forecasts edged up by 0.1pp in both 2026 and 2027, to 2.3% and 2.4%, respectively, consistent with strong readings on activity.

The inflation forecasts surprisingly rose by 0.1pp in 2026, to 3.4%, and in 2028, to 2.2%, exceeding consensus expectations for no change or even downward revisions. A 0.2pp downward revision to core PCE inflation is expected on 30 September as part of the BEA’s annual revisions. Chair Warsh described core PCE inflation through August as running at 3.2%, below the latest July reading of 3.3%, suggesting that his views may differ materially from those of the median participant.

At his press conference, Chair Warsh explained that the hike was designed to “remove a dose of accommodation” and “support a timelier return” to 2% inflation. He reiterated his late-August view that policy did not appear restrictive. He also repeated several themes from the Jackson Hole symposium, including that “this summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

In contrast to his previous press conferences, he provided more signposts for the data he is watching ahead of future policy decisions. He listed three factors that had supported a hike since July: inflation trends, the strength of economic activity, and geopolitical developments and commodity prices. He also noted that the share of items with inflation above 3% is an important criterion. Providing this roadmap gives investors an informal policy reaction function and addresses a recent criticism of the Chair’s communication style, in our view.

Today’s meeting is consistent with our outlook for another hike in December, as the bar for remaining on hold appears fairly high, with only two more inflation reports due before then. The Chair has downplayed dependence on individual data points, and it is unclear whether two inflation readings will be convincing enough unless they are clearly below 2% on an annualized basis and the Iran conflict has materially changed. Broad support for two hikes—and nearly half of participants supporting a third—indicates that risks are skewed to the upside. However, in our view, market pricing for a total of four hikes is excessive. We expect fairly steady disinflation over the next six months, while favorable base effects in 1H27 should weaken the case for a long sequence of hikes.