UBS Global Wealth Management now expects the Fed to cut rates in December 2026 and March 2027, joining other brokerages that no longer expect rate cuts this year due to persistent inflation and a strong labor market.
The revision marks a sharp change in the firm’s outlook. UBS had previously predicted 25-basis-point cuts in September and December 2025. Those calls are now off the table.
How the Iran War Reset UBS’s Rate Timeline
The conflict with Iran, now in its 11th week with no clear path to a ceasefire, has driven oil prices higher and deepened inflation concerns across Wall Street.
The latest government data confirm those concerns. The Consumer Price Index rose 3.8% over the 12 months ending in April, with the energy index up 3.8% for the month and accounting for more than 40% of the total monthly increase, according to the U.S. Bureau of Labor Statistics. That annual rate is the highest since May 2023.
Core CPI, which strips out food and energy, rose 0.4% in April and 2.8% annually, keeping underlying inflation well above the Federal Reserve’s 2% target.
The energy shock runs deep. Gasoline prices are up 28.4% over the past year. Oil is running above $100 a barrel, and the national average for gasoline sits near $4.50 a gallon.
What the Jobs Numbers Say About the Fed’s Options
The labor market is giving the Fed little reason to act. Nonfarm payrolls rose by 115,000 in April, well above the Dow Jones consensus forecast of 55,000. The unemployment rate held at 4.3%.
Chicago Fed President Austan Goolsbee offered a measured take on the data. “The labor market has been pretty much stable for a year, year and a half,” he said in a CNBC interview.
“The unemployment rate has been stable, the hiring rate’s been stable, the layoff rate’s been stable.”
Average hourly earnings rose a soft 0.2% month-over-month in April, matching March’s gain, and climbed 3.6% over the past year. With wages growing slower than inflation, real purchasing power is sliding.
Mark Zandi, chief economist at Moody’s Analytics, expects inflation to keep accelerating through the summer before falling to 3.3% by year-end, even if the conflict ends within weeks.
Why Other Wall Street Firms Are Making the Same Call
UBS is not alone. Brokerages are increasingly pricing in no policy easing in 2026, compared with earlier expectations of at least two quarter-point reductions this year.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, was blunt.
“Given that inflation is heading in the wrong direction and the labor market is holding up, it’s very unlikely that the Fed will be able to lower interest rates any time soon,” he said, adding that rate hikes could come back onto the table for next year.
Incoming Fed Chair Kevin Warsh, nominated by President Donald Trump, has advocated for lower rates, a position analysts say will be hard to square with an inflationary environment pushed higher by the Iran conflict.
Key Dates to Watch
Three milestones stand out for investors tracking this story:
- June 5, 2026: The Bureau of Labor Statistics releases the May Employment Situation report, the next major read on labor market health.
- Mid-June 2026: The Fed’s next Federal Open Market Committee decision, where policymakers are widely expected to hold rates steady.
- Mid-July 2026: The June CPI release, which will show whether energy-driven inflation has peaked or continued climbing.
Until any of those prints deliver a clear turn, UBS’s new forecast of no cuts until late 2026 reflects where most of the Street now stands.
