UOB: Fed expected to hold rates until end of 2026, with two rate cuts in 2027

Odaily Planet Daily 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 2026. The bank expects two 25-basis-point rate cuts in 2027, gradually lowering the federal funds rate to around 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, with possible 25-basis-point cuts at the end of Q2 and Q4 2027.

Under this scenario, the target range for the federal funds rate is expected to remain unchanged until the end of 2026, then gradually decline to 3.25% by the end of 2027, which remains our estimate of the terminal federal funds rate. While the 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 against risks that cannot be ignored regarding policy tightening." (Jin Shi)