The CEO of UBS, Sergio Ermotti, believes that the battle against inflation is far from over. He expressed his thoughts on the market’s anticipation of an aggressive rate cut by the U.S. Federal Reserve, stating that the expectations might be premature. According to Ermotti, the market seems to be getting ahead of itself in predicting the Fed’s next move.
Ermotti highlighted that while the Fed’s decision to lower rates at its upcoming policy meeting in September is nearly certain, the extent of the rate cut is still up for debate. He emphasized that inflation remains a critical issue that the Fed needs to address, as it is not yet completely under control. Recent data showing an increase in the core U.S. consumer price index for the month of August suggests that inflation could impact the Fed’s decision on the rate cut.
Despite traders pricing in an 85% probability of a 25 basis points rate reduction, there is still a 15% chance of a more aggressive 50 basis points cut, according to the CME Group’s FedWatch Tool. Ermotti believes that while a rate cut is likely, it may not align with the market’s expectations. The Fed’s current benchmark borrowing rate stands at 5.25%-5.50%, and the upcoming decision will have implications for consumer interest rates.
Ermotti expressed cautious optimism about a soft landing in the economy, citing resilience among consumers. He believes that the economic data still point towards a favorable outcome despite lingering inflation concerns. UBS remains positive about the current situation, anticipating a smooth transition towards a soft landing.
UBS CEO emphasized the importance of Asia as a key growth driver for the company. He acknowledged the challenges posed by geopolitics and the global economic landscape but remained confident in the region’s growth momentum. Despite uncertainties surrounding China’s economic outlook, Ermotti reiterated UBS’s long-standing commitment to the country, emphasizing the opportunities it presents for future growth.
Last quarter, UBS exceeded profit expectations, reflecting a strong performance in its global wealth management and investment banking units. Ermotti identified the U.S. and Asia, including China, as significant growth engines for the company. He emphasized UBS’s continued focus on these regions and its commitment to long-term growth and stability.
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