Federal Reserve: Two more hikes seen as inflation stays too high – UOB

UOB’s economics team, led by Suan Teck Kin and Alvin Liew, interprets the September FOMC as the start of a short hiking extension rather than a one-off move. They now expect additional 25-bps hikes in December 2026 and 1Q27, followed by a prolonged hold, while warning that persistent inflation driven by energy, tariffs and AI could still force further tightening.

Short extension to hiking cycle

"Like the markets, we do not think this is a “one-and-done hike” from the Fed, and as per previous rate hike cycles, the Fed usually does not stop at one."

"On the other hand, we do not believe this is the start of a long series of hikes."

"As such, we expect two additional hikes, in Dec 2026 and 1Q 2027, thereafter on hold for rest of 2027 as the inflation fades in a more durable fashion in the later part of 2027 as the most likely course of action."

"That said, we continue to keep in mind the risks of further policy tightening if inflation trajectory is made more persistent by the combination of higher energy prices, trade tariffs and AI-related factors."

"We have ruled out a back-to-back rate hike in the Oct FOMC, due to its proximity to the mid-term elections (3 Nov)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)