Federal Reserve: Gradual easing path – UOB

FXStreet Insights Team FXStreet

Alvin Liew of UOB outlines expectations for the Federal Funds Rate following the July US CPI release. Market pricing for a September hike has fallen, and UOB’s base case is an extended pause through 2026. The bank projects two 25 basis point cuts in 2027, taking the Federal Funds Rate down gradually to around 3.25% by end-2027.

Projected Fed funds trajectory to 2027

"Post-Jul CPI release, the probability of a 25-bps hike in the Sep FOMC was reduced to 39.9% from 48.1% (on 11 Aug), according to the Bloomberg WIRP."

"We continue to maintain our base case that the Fed will remain on pause for the rest of 2026 before resuming its easing cycle in 2027, with two 25bp rate cuts likely in late-2Q27 and late-4Q27."

"Under this scenario, the federal funds target rate is expected to remain unchanged through end-2026 before declining gradually to 3.25% by end-2027, which remains our estimate of the terminal Fed funds rate."

"While risks to our FOMC outlook have become more balanced following the Jun and Jul CPI reports, they remain modestly skewed to the upside due to geopolitical and energy-related uncertainties, as such, we remain mindful of the non-negligible risks of policy tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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