UBS US Economics Weekly: The Warsh Fed Begins
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With Kevin Warsh nominated as Federal Reserve Chair, UBS expects a decisive shift toward a more hawkish monetary policy stance. The report forecasts two 25 basis point rate hikes in September and December 2026, bringing the federal funds rate to 4.00–4.25%. Warsh's appointment is also expected to accelerate balance sheet reduction, with the monthly runoff pace potentially increasing from $95 billion to $110 billion.
Fed communication under Warsh would likely place greater emphasis on inflation risks rather than employment maximization. Markets have already priced in approximately 50 basis points of tightening in 2026, aligning with the UBS forecast. However, if core PCE inflation remains above 3% in the second half of 2026, the first hike could be pulled forward to July. The estimate for the long-term neutral interest rate may be revised up to 3.0%. Warsh is also expected to support a more transparent rate path, potentially through enhanced quarterly dot plot projections. Key downside risks include faster-than-expected disinflation or an economic downturn that could pause the hiking cycle. The report does not provide specific asset recommendations.
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