UBS Group AG CEO: Market expectations for the Fed rate cut are too aggressive, optimistic about a soft landing for the US economy

According to the Zhitong Finance APP, Sergio Ermotti, CEO of the Swiss banking giant UBS Group, said on Thursday that the battle against inflation is not over yet, and some investors seem to be overly optimistic about the possibility of a significant rate cut by the Federal Reserve this month.

UBS CEO Sergio Ermotti said in an interview, "I think the market seems to be a bit too optimistic about the Fed taking such aggressive action."

The question of whether the Fed will cut rates at the end of the next policy meeting on September 18 has largely been answered. The only remaining question is: by how much.

Ermotti added that the "most important" issue the Fed still needs to consider is inflation, which remains tricky and has not been "completely under control."

According to data released on Wednesday, the core Consumer Price Index (excluding volatile food and energy prices) in the US rose by 0.3% in August, slightly higher than the expected 0.2% increase.

While the broader Consumer Price Index (a broad measure of the cost of goods and services in the US economy) rose by only 0.2% in August, the increase in the core CPI could weaken the possibility of a significant rate cut by the Fed at the upcoming policy meeting next week.

Ermotti said, "I think there might be a cut, but not as much as the market expects."

According to CME's FedWatch tool, although traders expect an 87% chance of a 25 basis point rate cut in September, 13% still expect a 50 basis point cut. Currently, the Fed's benchmark lending rate is 5.25%-5.50%.

In addition, Ermotti stated that the long-awaited soft landing is still possible, and added that other economic data still seem to point to this scenario.

"Some of the inflation is quite sticky, but consumer performance is quite good," he pointed out. "But I would say that, for now, the outlook is very consistent with a soft landing, so we remain optimistic about the situation."

Ermotti also shared his optimism about Asia, stating that while UBS sees "very good" growth momentum in the region, it is not immune to challenges posed by geopolitical issues and broader global economic prospects.

Regarding the Chinese market, Ermotti said that the bank will redouble its efforts to fulfill its commitments in China and the opportunities it provides. He said, "We have been in China for over 50 years, and we will stay there for 100, 200 years."

Last month, UBS announced second-quarter profits that exceeded expectations, with net profit attributable to shareholders reaching $1.136 billion, benefiting from cost-cutting measures and increased revenue in global wealth management and investment banking divisions.

Ermotti said, "Overall, our two real opportunities and growth engines are still the US and Asia, with China being a major driver among them."