UBS Global Wealth Management has joined a growing number of major financial institutions in pushing back forecasts for US monetary policy easing as inflation remains elevated and economic conditions stay relatively resilient.
The firm now expects the Federal Reserve to deliver two 25-basis-point interest rate cuts in December 2026 and March 2027.
Previously, UBS had forecast rate cuts beginning as early as September 2026, followed by another reduction later in the year.
The revised outlook reflects increasing concerns that inflationary pressures may remain stubbornly high for longer than policymakers and investors had originally expected.

Middle East Conflict Intensifies Inflation Pressures

One of the primary drivers behind the revised forecast has been the prolonged conflict involving Iran and disruptions across global energy markets.
The Iran war has now stretched into its eleventh week with no clear resolution, contributing to sustained increases in oil prices and broader inflation concerns worldwide.
Higher energy prices continue feeding into transportation, manufacturing, and consumer costs across the global economy.
Recent US inflation data showed consumer prices accelerating to their highest annual pace in roughly three years, with energy inflation accounting for a substantial portion of the increase.
Analysts noted that continued instability surrounding the Strait of Hormuz remains a major risk factor for both oil prices and inflation expectations.

Strong Labor Market Reduces Pressure on the Fed

UBS analysts also pointed to the continued strength of the US labor market as another major reason the Federal Reserve may delay easing policy.
Recent employment data showed that job growth in April exceeded expectations while the unemployment rate remained steady at 4.3%.
The combination of stable hiring activity and relatively strong economic growth has reduced the urgency for policymakers to begin lowering interest rates.
UBS analysts, led by Andrew Dubinsky, said conditions needed to justify a September rate cut have not yet materialized, particularly regarding sustained improvements in core goods inflation and supply-chain stability.

Markets Increasingly Expect Higher Rates for Longer

Financial markets have steadily shifted toward expectations that interest rates may remain elevated well into next year.
Earlier in 2026, investors widely expected the Federal Reserve to deliver at least two rate cuts before year-end.
However, persistent inflation, resilient economic data, and ongoing geopolitical risks have significantly altered those expectations.
According to CME FedWatch market pricing, traders now see a strong probability that the Federal Reserve will leave rates unchanged during its September policy meeting.
This shift has also contributed to rising Treasury yields and a stronger US dollar in recent weeks.

Federal Reserve Faces Growing Policy Challenges

The Federal Reserve now faces a difficult balancing act between containing inflation and avoiding excessive pressure on economic growth.
Higher energy costs tied to geopolitical instability continue complicating the inflation outlook, while strong labor market conditions reduce the need for emergency policy support.
Several Federal Reserve officials have recently emphasized caution regarding premature policy easing, warning that inflation risks may remain elevated for an extended period.
Analysts expect policymakers to continue closely monitoring inflation trends, labor market conditions, and developments in global energy markets before making significant changes to interest rate policy.

Investors Watch Upcoming Economic Data Closely

Going forward, investors are expected to focus heavily on future inflation reports, employment figures, and developments in the Middle East conflict.
Any signs of renewed energy supply disruptions or additional inflation acceleration could further delay expectations for monetary easing.
At the same time, weaker economic growth or deterioration in labor market conditions could eventually reopen the possibility of earlier rate cuts.
For now, however, markets increasingly appear positioned for a higher-for-longer interest rate environment.