• UBS now projects the Federal Reserve will delay rate cuts until September 2025, followed by another in December, as inflation and geopolitical risks persist.
  • The bank cites core PCE hovering around 3% and a stable labor market as key factors reinforcing a wait-and-see stance.
  • This forecast suggests a staged easing path beginning in late summer, contingent on clearer evidence inflation is falling toward the Fed's target range.

UBS Group AG has shifted its outlook for Federal Reserve monetary policy, now expecting the central bank to hold off on rate cuts until September, according to a note from the bank's economists. The revised projection, which anticipates an initial cut in September followed by another in December, reflects persistent inflationary pressures and heightened geopolitical uncertainties that are keeping policymakers cautious.

Economist Andrew Dubinsky, who authored the analysis, emphasized that the Fed is awaiting more definitive signs that inflation is decelerating toward its 2–2.5% target range. Core PCE, a closely watched measure, remains elevated at approximately 3%, partly driven by tariff-related effects and supply-chain dynamics. "The Fed needs clear evidence inflation is falling before moving," Dubinsky noted, echoing recent communications from central bank officials who have stressed data dependence in their decision-making.

Rising oil prices, linked to tensions involving Iran, and a resilient labor market are further complicating the inflation outlook, underpinning what UBS describes as a "wait-and-see" posture. These factors add a risk premium to inflation expectations, making policymakers hesitant to ease prematurely. Market participants have been closely monitoring these cross-currents, with recent data showing little momentum toward a rapid cooling of price pressures.

Efforts to gauge the timing of rate cuts have hit a snag as inflation proves stickier than some anticipated earlier this year. Without clearer disinflationary signals, the Fed is likely to maintain its current policy stance through the summer, according to people familiar with the matter. UBS's forecast aligns with a broader consensus among analysts that the first cut may now come later than initially expected, though the exact timing remains fluid and data-dependent.

In practice, this delayed easing path could sustain higher short-term yields for fixed-income portfolios, while equity and risk assets may recalibrate to a slower rate-cut cadence. Wealth managers and corporate treasurers are already adjusting their strategies accordingly, with some delaying refinancing plans until the anticipated cuts materialize. "We're advising clients to plan for a longer hold of current borrowing costs," said a source at a major asset management firm, who requested anonymity to discuss internal guidance.

Looking ahead, incoming inflation prints—particularly core PCE and wage metrics—along with oil-market stability will be decisive for the Fed's moves. Global geopolitical developments and shifts in trade policy could also reintroduce price pressures or dampen demand, influencing the monetary policy trajectory. Central bank communications, including upcoming Fed minutes and speeches, will provide further clarity on how these factors are weighted in the inflation framework.

UBS expects conditions to improve in 2026, but warns that the timing of cuts remains uncertain, with risks skewed toward data dependence. If inflation cools more quickly than projected, the September cut could shift earlier; conversely, stubborn price pressures might push it further into the fall. The bank's structural view mirrors a cautious, evidence-based approach seen in prior late-cycle phases, emphasizing gradual normalization rather than abrupt shifts.

Correction: An earlier version of this article misstated the timing of the second anticipated rate cut; it is projected for December, not November.