UOB: Expected to Hold Rates Steady Until End of 2026, with Two Rate Cuts in 2027

Odaily Odaily News: UOB analyst Alvin Liew elaborated on expectations for the federal funds rate following the release of July U.S. CPI data. Market pricing for a September rate hike has declined, and UOB's base case is an extended pause through the entirety of 2026. The bank anticipates two 25-basis-point rate cuts in 2027, gradually bringing the federal funds rate down to approximately 3.25% by the end of 2027: "We maintain our base case that the Fed will remain on hold for the remainder of 2026 before resuming its easing cycle in 2027, potentially cutting rates by 25 basis points at the end of Q2 and Q4 2027.

Under this scenario, the target range for the federal funds rate is expected to remain unchanged through the end of 2026 before gradually declining to 3.25% by the end of 2027, which remains our estimate for the terminal federal funds rate. While risks to our FOMC outlook have become more balanced following the June and July CPI reports, risks remain slightly tilted to the upside due to geopolitical and energy-related uncertainties, so we remain vigilant about risks that policy tightening cannot be overlooked." (Jin Shi)