UBS: US-Iran Agreement Eases Fed Rate Hike Pressure, Next Move is Rate Cut in 2027

June 15 — Leslie Falconio, Head of Taxable Fixed Income Strategy at UBS Global Wealth Management, said that after the U.S. and Iran announced an agreement, oil prices tumbled sharply, which in turn has strengthened the U.S. Treasury market and lessened pressure on the Federal Reserve to raise interest rates this year. Falconio noted, “Even before the ceasefire deal was reached, oil prices had already started to drop, but yields on the 2-year U.S. Treasury note kept going up because the market had built in an almost 100% chance of a December rate hike. Now that oil prices are falling, the market is slowly backing out of those rate hike expectations—and as a result, 2-year Treasury yields are starting to decline.” This week brings Fed Chair Jerome Powell’s first interest rate decision meeting. Earlier, soaring oil prices had reignited inflation concerns, pushing more FOMC members to speak in favor of a rate hike this year. Falconio expects the FOMC to formally ditch its dovish stance at this week’s gathering, making the policy outlook more hawkish. Still, she believes the Fed’s next move will be a rate cut, with that timing landing in 2027. Source: FX Street