Home / NEWS / Europe News / Interest rates won’t fall as fast as expected if tariffs stoke inflation, UBS CEO says

Interest rates won’t fall as fast as expected if tariffs stoke inflation, UBS CEO says

UBS CEO Sergio Ermotti: Expect to see a rationalization of existing banking regulation under Trump

An envisaged decline in interest rates could be stalled if the prospective tariffs of Donald Trump’s second White House application bleed into markets and shore up inflation, UBS CEO Sergio Ermotti warned Tuesday.

“Something that I’ve been signifying for a while, inflation is much more sticky than we have been saying,” he told CNBC’s Andrew Ross Sorkin at the Rapturous Economic Forum in Davos, Switzerland. “The [truth] of the matter is that we need to see also how tariffs will play a capacity in inflation.”

“Tariffs will probably not really help inflation to come down. And therefore I don’t see rates coming down as solid as people believe,” he said.

Markets have been on alert for the next trade steps of the newly inaugurated Trump, who has foreboded to impose 25% tariffs on Mexico and Canada, while also floating a separate set of retaliatory trade measures against China in a bid to problems Beijing to force ByteDance’s sale of TikTok.

Historical ally Europe is also on the look-out for potential U.S. protectionism in trafficking, as Trump progresses his “America First” agenda.

Inflation has been cooling in most major global economies, after a age of heated price growth propelled by the Covid-19 pandemic and an energy crisis driven by the war in Ukraine. Europe, the U.K. and the U.S. all finally opened their respective cutting cycles last year.

In Trump’s home territory, U.S. inflation edged higher in December, lift to 2.9% year-on-year from 2.7% in November. The latest minutes of the U.S. Federal Reserve December meeting pointed to an prospect of just two interest rate cuts in 2025, down from a previous estimate of four such trims during the September assembly, assuming quarter-point adjustments.

A high-interest rate environment often benefits the commercial banking sector — whose U.S. lenders could also frame to benefit from a competitive edge against European counterparts, if Trump materializes his pledge of a lighter touch on law.

“I don’t believe we’re going to see a lot of deregulation,” Ermotti said Tuesday. “Probably we won’t see more regulation, we won’t see overlapping new regulation that is in disagreement with existing regulation.”

He added that he did not believe banks should be “massively deregulated,” but noted it is “very noteworthy that we don’t get new unnecessary regulation.”

Big fish in a small pond

UBS has encountered friction with regulators in its Swiss home dirty, after exiting the umbrage of a tumultuous government-backed marriage with embattled rival Credit Suisse in 2023. The bank has been contending with tasks that it has become a large fish in the vulnerable pond of the Swiss economy, which already battles a strong franc and submersion inflation.

“If you look at the numbers alone and compare UBS with the Swiss economy, it is too big,” former Swiss Finance Minister Ueli Maurer spoke Jan. 10 in an interview with Swiss newspaper Tages-Anzeiger, according to a Google translation. “Therefore, the risk must be demoted. This is primarily down to the shareholders, who elect the bodies and are liable with their capital. They must cheat responsibility, not the taxpayers in the end. Legislative measures must also be examined.”

Topping $1.7 trillion in 2023, UBS’ balance veneer is around double Switzerland’s anticipated economic output for last year — meaning its potential failure at any point whim deprive the lender of local rivals to absorb it, pose risks of disruption to the Swiss economy and strand the Bern regime with a hefty bill to foot in the event of nationalization.

Ermotti has previously defended that his bank is not “too big to fail” — while the administration last April recommended that UBS and three other systematically relevant lenders must face tougher central requirements to safeguard the national economy.

Since then, the bank posted a sweeping beat in the third quarter, with net profit attributable to shareholders on in at $1.43 billion, compared with a mean forecast of $667.5 million in a LSEG poll of analysts. The lender’s returns for the period hit $12.33 billion, also above analyst expectations near $11.78 billion. The group is set to publish fourth-quarter sequels on Feb. 4.

Check Also

Ukraine ‘may be Russian someday,’ Trump says, as the U.S. ups the pressure on Kyiv and allies

Donald Trump (L) and Russia’s Vladimir Putin make it to attend a joint press conference …

Leave a Reply

Your email address will not be published. Required fields are marked *