The CEO of Swiss banking giant UBS stated on Thursday that the battle against inflation is not yet over and warned that some investors may be prematurely anticipating an aggressive rate cut from the U.S. Federal Reserve this month.
“I believe the market is getting a bit ahead of itself in expecting the Fed to act so aggressively,” Sergio Ermotti, Group CEO of UBS Group AG, told CNBC’s “Squawk Box Asia.”
The question of whether the Fed will reduce rates at its upcoming policy meeting on September 18 has largely been settled, with the remaining uncertainty being the extent of the cut.
Ermotti emphasized that the primary concern for the Fed remains inflation, which continues to be persistent and not yet fully under control.
Recent data showed that the core U.S. Consumer Price Index (CPI), which excludes the often volatile food and energy prices, increased by 0.3% in August, surpassing the anticipated 0.2% rise.
While the broader CPI, which tracks overall costs for goods and services across the U.S. economy, also rose by 0.2% in August, the higher-than-expected core CPI could diminish the chances of a substantial interest rate cut by the Fed at its upcoming meeting.
“I would anticipate a rate cut, but not as significant as the market expects,” Ermotti remarked.
Traders are forecasting an 85% likelihood of a 25 basis point (bps) rate cut in September, while there is a 15% chance of a 50 bps reduction, as per the CME Group’s FedWatch Tool. A basis point is equal to 0.01 percentage points.
The Fed’s benchmark borrowing rate, which affects many other consumer rates, is presently set at 5.25%-5.50%.
Ermotti suggested that a long-awaited soft landing is still achievable, noting that other economic indicators continue to support this outlook.
“Although consumers are managing relatively well, certain areas of inflation remain persistent,” he said. “For now, a gentle landing appears to be the most probable outcome, and we remain cautiously optimistic.”
Along with his optimism, he mentioned how UBS is seeing “very good momentum” in the rise of Asia. Nonetheless, he admitted that the area faces larger global economic and geopolitical difficulties.
Despite China’s challenging economic outlook, Ermotti reaffirmed the bank’s commitment to the country and its potential. He said, “We plan to stay in China for the next hundred or two centuries. We have been operating there for more than 50 years.”
UBS exceeded profit forecasts for the second quarter, reporting $1.136 billion in net profit attributable to shareholders. This performance was bolstered by cost-reduction strategies and higher revenue from global wealth management and investment banking, surpassing the anticipated profit of $528 million.
Ermotti concluded, “The primary growth drivers for us remain the U.S. and Asia broadly, with China playing a significant role.”
