UBS: Fed Likely to Hold Steady, Rate Cuts May Not Come Until 2027
Claire Weston
UBS fixed-income strategist Leslie Falconio expects the Fed to stay on hold until early 2027 before cutting, with new Chair Kevin Warsh's first FOMC meeting this week likely to drop dovish language and tilt hawkish.
Oil fell — why did rate-hike bets suddenly ease?
After the US-Iran deal, expectations of resumed Strait of Hormuz traffic pushed oil prices lower, easing inflation pressure.
Before oil fell, the 2-year Treasury yield kept climbing; markets priced a December 2026 hike at close to 100%.
As oil dropped, markets unwound those bets — the implied hike probability fell from near 100% to roughly 74%.
This means → oil is the swing variable for rate expectations right now — every step down in oil pulls hike pricing back a step.
Why does UBS say a cut won't come until 2027?
Falconio sees the Fed's next move as a cut, not a hike — but not until Q1 or Q2 2027.
In plain terms = no hike does not equal a cut; there is a long stretch of doing nothing in between.
She argues the Fed will hold rates steady through all of 2026, giving policymakers time to assess growth — which remains "resilient" — and the labor market.
This reflects UBS's core read: the economy is not weak enough to cut, not hot enough to hike, so the Fed lets the data decide.
This week's FOMC — what is the market watching?
New Fed Chair Kevin Warsh hosts his first FOMC meeting this week; the rate decision lands June 18 at 2:00 a.m. Beijing time.
Markets broadly expect rates held steady, but the real focus is Warsh's language and stance.
Falconio expects the meeting to formally drop dovish wording, tilting the policy outlook hawkish.
This means → the rate decision itself holds no suspense; the variable is how hawkish Warsh sounds at the press conference — a hard anti-inflation tone could push markets to reprice the tightening path further.
I do think they will choose to stay on hold, exercise the optionality they have, wait and see, let more economic data come in, and then decide whether to adjust policy.
Leslie Falconio
Head of Fixed Income Strategy, UBS Global Wealth Management
(Monday interview)
Content is for reference only, not financial advice.