Investing.com -- UBS now expects the Federal Reserve to delay the start of its easing cycle until September, citing persistent inflation pressures, geopolitical risks and a diminished sense of urgency around the labor market.

In a note, UBS’s U.S. economist Andrew Dubinsky wrote that the bank “now expects the Fed’s next rate cut in September, followed by a second cut in December,” which would bring the federal funds rate to roughly 3.00–3.25% by the end of 2026.

UBS noted that the Fed has set a “higher bar for inflation progress,” emphasizing the need for “clear, convincing evidence that inflation—especially core goods prices—is falling as tariff-related price pressures fade.”

“Core PCE inflation remains around 3.0% y/y, with tariffs accounting for roughly 50-75 bps, prompting policymakers to wait for these effects to reverse in the data,” wrote Dubinsky.

The bank also highlighted the inflationary risks associated with the Iran-related oil price surge, saying the shock has led policymakers to adopt a “watch-and-wait” posture instead of looking through energy-driven volatility.

On the labor market, UBS wrote that the Fed “now views zero job growth as consistent with stable unemployment, reducing pressure to cut rates preemptively.”

The economist added that conditions in the second half of 2026 should be more conducive to easing as inflation cools, oil effects stabilise and growth slows toward trend.

UBS warned that risks around the timing and scale of cuts remain two-sided, with either weaker inflation progress or softer growth capable of shifting the path ahead.