Fed Resumes Rate Hikes: Interest Rate Path Forecasts from UBS, Goldman Sachs, and Five Major Institutions

At its September FOMC meeting, the Federal Reserve unanimously approved a 25-basis-point rate hike, raising the federal funds target range to 3.75%–4.00%. This was not only the Fed’s first rate increase in three years; it may also signal that global markets are entering a fundamentally different policy environment—one defined by inflation-first policymaking, higher rates for longer, and greater sensitivity to energy prices, geopolitics, and financial conditions.

What markets are asking is no longer simply whether the Fed will hike rates one more time. The more important questions are:

• Could the Fed deliver another consecutive hike in October?

• Will it raise rates by another 25 basis points in December?

• Could rates remain above 4% in 2027?

• How will the U.S. dollar, Treasury yields, and risk assets be repriced?

The latest views from UBS, Standard Chartered, DBS, Goldman Sachs, and TD Securities differ in terms of timing and pace. However, their central message is strikingly consistent: the upside risk to the Fed’s policy path is now materially greater than markets had previously anticipated.

Behind the Unanimous Hike: The Fed Is Rebuilding Its Anti-Inflation Credibility

The FOMC approved the latest rate increase by a 12–0 vote, sending a clear message. Even as the U.S. economy continues to expand and the labor market has not shown clear signs of weakness, the Fed remains willing to maintain a more restrictive stance to contain sticky inflation.

The latest dot plot further suggests that most officials see a need for at least one additional rate hike before year-end. Market attention has therefore shifted to two key figures:

1. The projected policy rate remains elevated at 4.1% in 2027.

2. The median estimate for the longer-run federal funds rate has risen to 3.2%.

This indicates that the Fed is revising upward its view of both the “neutral rate” and the level of rates required to be meaningfully restrictive. In other words, the old market framework—where relatively low rates were considered the normal state of the economy—may no longer apply.

If the high-rate plateau lasts longer, asset valuations, corporate funding costs, Treasury yields, dollar liquidity, and global risk appetite could all face another round of adjustment.

UBS: The Next Four Years Could Bring the Most Hawkish Fed in Nearly Four Decades

UBS has delivered one of the market’s most cautionary assessments.

Jonathan Pingle, Chief U.S. Economist at UBS, argues that Fed Chair Kevin Warsh’s policy messaging suggests that the FOMC’s reaction function over the next four years could be more hawkish than at any point in recent decades. Unlike the traditional Fed framework, which places heavy emphasis on unemployment, economic growth, and the neutral rate, the new policy framework appears to focus more closely on three factors:

• Whether financial conditions are genuinely restrictive

• Whether geopolitical shocks are creating inflation spillovers

• Whether higher energy prices are generating second-round inflation effects

This suggests that the Fed may no longer treat oil-price spikes, wars, or supply shocks merely as temporary and ignorable noise. Instead, it may use monetary policy earlier and more aggressively to prevent inflation expectations from becoming entrenched.

UBS expects the Fed to pause in October to assess incoming data and avoid a politically sensitive period, before delivering another 25-basis-point hike in December. More importantly, UBS sees clear upside risks to the policy path: if inflation does not continue to decline, rates could move higher and remain elevated for longer.

UBS’s Core View

• October: Pause and assess

• December: Another 25-basis-point hike

• 2027: Rates remain elevated

• Risk bias: More hikes are more likely than early rate cuts

For markets, UBS’s view implies that “higher for longer” could provide medium-term support for the U.S. dollar and Treasury yields, while increasing pressure on high-valuation assets and leveraged positions.

Standard Chartered: Still Hawkish, but Markets May Be Overpricing the Number of Hikes

Compared with UBS, Standard Chartered takes a more balanced view.

The bank believes that the unanimous rate hike helps the Fed rebuild its anti-inflation credibility. It expects another hike before year-end and leaves room for one more increase in the first half of next year. However, Standard Chartered does not fully agree with the market’s aggressive pricing of multiple consecutive hikes.

It expects the inflationary effects of tariffs and high oil prices to gradually fade in the second half of 2027. This could allow the Fed to begin cutting rates in the second half of next year, bringing the policy rate back toward the 4.00%–4.25% range.

Standard Chartered’s Core View

• Before year-end: Possibly one more hike

• First half of next year: Possibly one additional hike

• Second half of next year: Potential start of rate cuts

• U.S. Dollar Index: Three-month target raised to 100

• U.S. 10-year Treasury yield: Three-month target raised to 5.0%–5.25%

Standard Chartered’s outlook reflects a classic “hawkish in the short term, easing over the longer term” scenario. Markets may still need to absorb the pressure from higher rates and elevated yields in the near term, but rates may not necessarily enter an uncontrolled upward cycle if inflation gradually cools.

DBS: Terminal Rate Seen at 4.5%, but Black Swan Risks Could Rewrite the Script

DBS expects the Fed to hike once more before year-end and potentially again early next year, taking the terminal rate in this short tightening cycle to 4.5%.

This forecast sits between UBS’s higher-for-longer framework and Standard Chartered’s more moderate tightening scenario. DBS’s main point is that while current inflation pressures and economic resilience support further tightening, the rate path could still be disrupted by unexpected events.

Potential turning points highlighted by DBS include:

• A large-scale market sell-off

• A public debt or sovereign debt crisis

• A major AI-related risk event

• A rapid deterioration in the labor market

• Significant worsening in geopolitical conditions

If such factors trigger financial stability concerns, the Fed may be forced to shift from an “inflation-first” stance toward one focused on stabilizing the economy and financial markets.

DBS’s Core View

• Before year-end: One more hike

• Early next year: One more hike

• Terminal rate: 4.5%

• U.S. 10-year Treasury yield: 5.1% by end-2026 and 5.2% by end-2027

For market participants, the DBS framework is a reminder that rate trading should not focus solely on CPI and nonfarm payrolls. Liquidity conditions, credit spreads, debt risks, and geopolitical developments also need to be assessed.

Goldman Sachs and TD Securities: Rate Hikes Could Come Faster Than Markets Expect

Following the latest Fed decision, Goldman Sachs quickly revised its forecast. It moved from expecting the Fed to pause after a September hike to forecasting that another 25-basis-point increase could come as early as October.

Goldman’s logic is straightforward: if the Fed wants to return inflation to its 2% target more quickly, consecutive hikes may be more effective than extending the interval between policy moves. Interest-rate futures at one point reflected more than a 50% chance of another hike in October, with an even higher probability of an increase by year-end.

TD Securities takes an even more hawkish stance, expecting three hikes in the current cycle:

• A 25-basis-point hike in September

• Another 25-basis-point hike in October

• A third 25-basis-point hike in January next year

If this scenario materializes, the federal funds target range would rise further to 4.25%–4.50%.

TD Securities argues that the key reason is that inflation is cooling more slowly than expected. Even if core inflation data appear to improve, the Fed will struggle to pivot quickly toward easing as long as monthly inflation readings remain elevated and energy prices continue to rise.

Comparing the Rate Path Views of Major Institutions

What Should Markets Watch? Four Key Variables That Will Shape the Fed’s Next Move

1. Is Inflation Actually Cooling?

The monthly pace of core inflation remains one of the Fed’s most important indicators. If core CPI and core PCE continue to show elevated growth, market pricing for further hikes will be difficult to unwind.

2. Can Energy Prices Decline?

Higher oil prices do more than push up headline CPI. They can also generate second-round inflation effects through transportation, manufacturing, services, and consumer expectations. If the Fed adopts a more active response to supply shocks, energy will become a key driver of the rate path.

3. Is the Labor Market Showing Clear Signs of Weakness?

Policymakers currently remain relatively confident in the labor market. If unemployment stays low and wage growth remains strong, the Fed will have more room to keep rates restrictive. Conversely, a rapid deterioration in employment data could bring the tightening cycle to an earlier end.

4. Can Financial Markets Withstand Higher Rates?

Higher rates typically support the U.S. dollar and short-term yields, but they can pressure equity valuations, real estate, corporate credit, financing demand, and capital flows into emerging markets. If liquidity deteriorates or credit risks widen, the Fed may be forced to adjust its priorities.

How Should CFD Traders View the Fed’s Rate Path?

Changes in Fed rate expectations rarely affect only one market. They can simultaneously drive volatility in the U.S. dollar, gold, crude oil, U.S. equity indices, Treasury yields, and crypto assets.

In a more hawkish scenario, traders typically monitor:

• U.S. Dollar Index (DXY): Rising rate-hike expectations generally support the dollar.

• Gold: Higher rates and a stronger dollar may weigh on gold prices, although safe-haven demand and geopolitical risks can provide an offsetting force.

• U.S. equity indices: High-valuation technology stocks, growth stocks, and highly leveraged companies are often more sensitive to rising yields.

• Crude oil: Oil prices are both an inflation driver and a function of geopolitics, supply-demand dynamics, and dollar movements.

• U.S. Treasury yields: If markets continue raising expectations for the terminal rate and the long-run neutral rate, long-end yields may remain volatile at elevated levels.

• Crypto assets: Tighter liquidity conditions typically increase risk-asset volatility, making moves in the dollar and real yields especially important.

However, rate trading is not a one-way proposition. Once markets have fully priced in a hawkish outlook, weaker inflation, employment, or financial-market data can trigger rapid reversals. The key is not simply to predict a single direction, but to identify volatility opportunities created by data releases, FOMC meetings, Fed speeches, and shifts in market expectations.

Conclusion: The Real Risk Is Not Just One More Hike—It Is Higher Rates Becoming the New Normal

UBS sees a more structural and longer-lasting hawkish Fed. Standard Chartered believes there is still room for rates to decline after further tightening. DBS warns investors to prepare for financial and geopolitical black swan risks. Goldman Sachs and TD Securities focus on the possibility of faster and more concentrated rate hikes.

While these institutions differ in their forecasts, their shared message is clear: markets can no longer rely on a rapid Fed pivot toward rate cuts as the only scenario.

The October and December FOMC meetings, core PCE, CPI, nonfarm payrolls, oil prices, and geopolitical developments will jointly determine whether the Fed pushes rates even higher

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