Unable to setup passcode

I see MrHoffman's replies which are one route to check. I'm going to suggest also checking another possible route for clues.

At the bottom of the Passcode page MrHoffman mentions, there is a slider for Wrist Detection. Does it work or is it locked?

Is your iPhone totally yours (personal, since new)? Or is it Work Issue (or has some work apps on it like your office email via Outlook)? If there is any work connection (even only on your iPhone) it might be that some configurations are controlled by your work IT security settings.

There have been some recent software updates from Apple so a mismatch is possible if only one device got updated. Please check your iPhone and Apple Watch are both on the latest versions.

iPhone: Settings > General > Software Update (should be iOS 16.6)

Watch app on iPhone: My Watch > General > Software Update (should be WatchOS 9.6)

Is the Watch Ultra already paired with your iPhone?

Set up and pair your Apple Watch with iPhone - Apple Support

In Watch app on the paired iPhone, if you check Settings > Passcode, are the following two lines (labels, buttons) shown at the top of the column?

Turn Passcode Off

Change Passcode