UBS: Federal Reserve unlikely to raise interest rates consecutively; the market has priced in an overly aggressive tightening path.

UBS Chief Investment Officer Mark Haefele and his team stated that markets have priced in an overly aggressive Federal Reserve tightening path, with actual interest rate hikes likely to be smaller than expected. After the 10-year U.S. Treasury yield broke above 5.1%, federal funds futures showed the probability of an October rate hike rising to 70%, but UBS’ baseline scenario remains one additional Fed rate hike in December, followed by holding rates steady. UBS forecasts that the U.S. Bureau of Economic Analysis’ annual revisions will lower core PCE inflation by 0.2 percentage points, and paired with favorable base effects in the first half of next year, inflation is likely to decline steadily over the coming six months. The median interest rate forecast among Fed officials also indicates rates will stay unchanged throughout 2027, weakening the foundation for continued sharp rate hikes. UBS also noted that the U.S. composite PMI rose to 58.4 in September, signaling ongoing economic resilience that supports corporate revenue and profit growth. The firm maintains an "attractive" rating on fixed-income assets, and projects S&P 500 earnings growth of 25% this year and 14% in 2027. For gold, UBS said the metal still faces near-term pressure from high interest rates and a strong U.S. dollar, but views a pullback in gold prices to around $4,000 per ounce as a buying opportunity, and forecasts gold will rise to $5,400 around September 2027.