UBS Investment Bank Research indicates that Federal Reserve Chair Kevin Warsh's signals during the September Federal Open Market Committee (FOMC) press conference highlight a significant shift in the U.S. monetary policy framework.

The Fed unanimously voted to raise interest rates by 25 basis points, lifting the target range for the federal funds rate to 3.75% to 4%. The latest dot plot suggests officials anticipate one more rate increase this year, with rates expected to hold at 4.1% through 2027.

UBS maintains its forecast for a further 25 basis point hike in December but acknowledges that the associated risks have clearly tilted to the upside.

Jonathan Pingle, Chief U.S. Economist at UBS, noted that "in summary, the FOMC's reaction function over the next four years could be more hawkish than at any point in the past four decades."

Pingle highlighted that Warsh repeatedly emphasized that current financial conditions are not restrictive, describing this rate hike as a step toward further removing some policy accommodation. UBS believes his remarks reflect a greater emphasis on the impact of financial conditions, energy prices, and geopolitical factors on inflation, alongside a reassessment of the rate level needed to achieve price stability and a renewed commitment to steering inflation back to the 2% target in a more timely manner.

The bank noted that Warsh's policy approach demonstrates a stronger focus on financial conditions and inflation risks compared to recent Fed chairs.