Tariff fog pressing down, UBS CEO takes cautious stance on rate cuts: Inflation transmission still unclear, Fed policy path difficult to judge.

CEO Sergio Ermotti of European financial giant UBS Group AG said in an interview on Thursday that the impact of the global tariff policy initiated by US President Trump on the US economic outlook and inflation path is still unclear, making it more difficult to predict the future of Federal Reserve policy. Ermotti also stated that the real problem with tariffs will be reflected in the vast US consumer base, and it is still unclear whether US tariffs will bring sustained long-term inflation. This veteran of the financial markets has a much more cautious outlook on US inflation and the Fed's rate-cutting path compared to the general market expectations. Currently, traders are collectively betting on the Fed starting a new round of rate cuts in September, and believe that the impact of tariffs on US inflation will be temporary, therefore betting that the Fed will cut rates three times by the end of the year to boost the significantly slowing US economy and struggling labor market. Economists at Barclays Bank have adjusted their forecasts, and now the institution expects the Fed to cut rates three times by 25 basis points each this year, and two more cuts in 2026, in line with expectations from Wall Street's Goldman Sachs. This reflects a shift in market focus from fighting inflation to addressing potential economic slowdown. After the extremely weak nonfarm payroll data for August was released, some market observers believe that the Fed's FOMC monetary policy decisions should not be seen from a preemptive rate-cutting perspective, but rather as responding with monetary policy slightly lagging the actual economic situation, so under the drive of continuing weak employment and sudden political pressures, the Fed's rate cut in September and the extent of its dovish signals may exceed general expectations. UBS CEO emphasizes that the impact of tariffs on inflation and the Fed's policy remains unclear "In the US market, we still believe that economic growth will continue, but the pace may slow significantly. However, there is still no consensus on the issue of inflation and how it will be reflected in central bank monetary policy," Ermotti said in an interview in Hong Kong last Thursday. Although market expectations for the Fed to cut rates at the September 16-17 meeting are already 100% priced in, investors' predictions about whether the Fed will cut rates by 25 basis points in September or a more aggressive 50 basis points, as well as the subsequent rate-cutting path, have been changing recently. "The real problem with tariffs will be seen on consumers," the 65-year-old Ermotti said. "In the US, we need to see specifically whether tariffs have a sustained negative impact on long-term inflation. I think this is still unclear." Ermotti's cautious stance is in line with Goldman Sachs CEO Solomon's cautious stance of "no need to cut rates rapidly." Goldman Sachs CEO David Solomon said earlier this week that the Fed does not need to cut rates quickly, in contrast to the Trump administration's pressure on the Fed to loosen monetary policy. Ermotti stated that the global economy is being divided into two parts - one driven by emerging technologies and artificial intelligence, and the other more traditional. This differentiation is evident in areas such as the vibrant IPO market in Hong Kong, he said during the interview. "On the whole, there is constructive momentum," he said. "But the conclusion is still unknown, because the complexity lies not only in the economy, but also in the very complex geopolitical environment now." According to media reports last month, the Swiss Department of Economy is seeking advice from UBS to address the urgent task of improving the US-Swiss trade agreement. The Trump administration has imposed tariffs of up to 39% on Swiss exports to the US, the highest tariff rate among all developed countries, posing a significant threat to Swiss businesses and the economy. Tensions between UBS and the Swiss government Playing a role in helping the government deal with tariffs may help enhance UBS's favorable position with Swiss authorities; previous tensions between the two have arisen from the bank's opposition to proposed capital rules. Ermotti called the new capital control plan "overly stringent" and described the debate over banking regulation in Switzerland as "a huge distraction." After the collapse of Credit Suisse in 2023, the Swiss government announced a new proposal to strengthen banking capital rules, as the merger of Credit Suisse and UBS formed a Swiss mega-bank that may be "too big to fail." As a result, the Swiss government expects this move to further increase the existing capital requirements for UBS by up to $260 billion. "The current capital requirements are too punitive and excessive, so we need to consider how to protect the interests of shareholders and stakeholders," Ermotti said. This debate raises the question of whether the country's largest commercial bank may restrict its growth, or even relocate its headquarters. Ermotti reiterated that the bank has no plans to downsize its operations and hopes to continue operating in Switzerland. "It is hard for me to imagine that such a successful global financial institution, which is very close to its customers, very resilient in terms of capital, and very powerful, should adopt a strategy of downsizing as a recipe for future success," he said. "So we are very focused on maintaining our global footprint." Ermotti stated that UBS is focusing on completing the integration with Credit Suisse by migrating large-scale customers in Switzerland, a process expected to be completed next year.