UBS expects the Federal Reserve to leave rates unchanged at its September 16 meeting, but flagged conditions that could force a shift. A stronger-than-expected labor-market report or renewed inflation pressure would increase the likelihood of a more hawkish Fed outcome, according to the bank's strategists. For now, UBS said the evidence does not support tightening, as year-over-year inflation readings are expected to ease around the turn of the year. The latest employment report was weaker than expected, and a second set of soft readings next week would further reduce the case for a September move. Markets currently price a Fed hike at roughly 40%, against an almost fully priced European Central Bank increase on September 10, and UBS noted that if the ECB hikes and the Fed does not, EURUSD is likely to move higher. Kevin Warsh's Jackson Hole keynote on Friday is the near-term catalyst, with UBS cautioning that expectations are so high that even silence could move markets.
UBS Group AGUBS's Fed rate outlook and ECB hike expectations could affect its business, but impact is mixed.
