UBS analysts now expect the Federal Reserve to implement two 25-basis-point rate cuts between June and September 2026, reversing their previous forecast for cuts in the second half of the year. The revision follows data showing U.S. consumer prices rose 2.4% in January, cooler than expected and suggesting tariff-driven inflation may have peaked.

Despite the Fed's target inflation rate of 2%, UBS analysts including Mark Haefele and Vincent Heaney argue that price pressures will continue moderating in coming months. The analysts point to containment in shelter inflation as evidence of an ongoing disinflationary trend in this major economic category. Recent comments from Kevin Warsh, President Trump's nominee to replace Fed Chair Jerome Powell, have also signaled a preference for looser monetary policy, further supporting the case for rate reductions.

This monetary easing backdrop is favorable for equities, bonds, and gold, according to UBS. The analysts believe that with a more dovish personnel profile at the Fed, the central bank remains on track to ease further. The forecast represents a significant shift from earlier projections, reflecting changing economic conditions and evolving policy expectations as the Fed navigates between controlling inflation and supporting economic growth.