SKN | Julius Baer Sees One Final Fed Rate Hike in December as Treasury Yields Remain Elevated

Key Takeaways:

• Julius Baer expects the Federal Reserve to deliver one final 25-basis-point rate increase this year, with December viewed as the most likely timing.
• Chief Economist David Kohl points to slower U.S. job growth and employment gains across fewer industries as reasons for a later move rather than an immediate hike.
• The bank expects the Fed to follow a potential December increase with an extended pause, while tighter financial conditions are already being driven largely by higher long-term yields and a stronger dollar.
• Julius Baer’s outlook highlights the importance of long-term Treasury yields for global wealth portfolios even as expectations for near-term Fed tightening have moderated.

Julius Baer expects the Federal Reserve to raise interest rates once more this year, with December emerging as the most likely timing for a final 25-basis-point increase. The bank’s view reflects a U.S. labor market that has cooled sufficiently to delay further action, while elevated long-term Treasury yields are already tightening financial conditions.

Julius Baer Pushes the Next Fed Move Toward December

Julius Baer Chief Economist David Kohl expects one additional rate increase followed by an extended pause. According to the bank’s assessment, slower employment growth and a reduction in the number of industries generating job gains make December a more likely window for the next policy move.

The positioning reflects a more measured approach to monetary policy. Rather than expecting immediate action following the September Fed meeting, Julius Baer sees policymakers requiring additional evidence before committing to another increase.

Higher Long-Term Yields Are Already Tightening Conditions

An important element of Julius Baer’s analysis is that financial conditions have tightened even without a significant increase in short-term rates. The bank attributes much of that tightening to higher long-term Treasury yields and dollar strength, while the supportive effect of rising equity markets has moderated.

The 10-year Treasury yield recently eased toward 5.27%, while the 30-year yield remained around 5.64%. Despite the retreat, long-term yields remain close to their highest levels in decades, creating a separate source of financial tightening for borrowers, businesses and investors.

Why Julius Baer Is Watching the Treasury Curve

For Julius Baer, the interaction between Federal Reserve policy and long-term bond yields is increasingly important. A potential December rate increase would affect the short end of the curve, but elevated long-term yields can continue to influence financing conditions even if the Fed subsequently pauses.

For internationally diversified wealth portfolios, that distinction matters. Duration exposure, U.S. dollar liquidity and fixed-income positioning can respond differently to movements in short-term policy expectations and longer-term borrowing costs.

Julius Baer’s Strategic Signal for Wealth Investors

The bank’s outlook suggests that investors should distinguish between the timing of the Fed’s next decision and the broader level of U.S. interest rates. Even if December delivers the final hike of the cycle, Julius Baer’s assessment indicates that financial conditions could remain restrictive if long-term yields and the dollar stay elevated.

For HNWI portfolios, the implication is a continued need to monitor the entire Treasury curve rather than focusing exclusively on the Fed funds rate. Julius Baer’s expected final hike followed by a pause could mark a transition in monetary policy, but not necessarily an immediate easing of the broader financing environment.

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