A trite walks past the Federal Reserve building on Constitution Avenue in Washington, March 19, 2019.
Leah Millis | Reuters
Investors are getting too far to the fore of themselves in expectations for the Federal Reserve to cut rates, according to a pair of top bankers at UBS and Goldman Sachs.
Hopes for cheaper take costs have spiked on the back of recent comments by Federal Reserve Chairman Jerome Powell and other top officials at the U.S. middle bank, sending U.S. stock markets soaring.
But Axel Weber, chairman of Swiss bank UBS, said Thursday that salespersons may be misreading the tone of such remarks.
“I think the market has overpriced the amount of rate cuts that the Fed is likely to do,” Weber utter during a panel discussion at an Institute of International Finance meeting in Tokyo.
“If you listen to some of the key decision makers with Charlie Evans, if you listen to Jay Powell, there is no imminent rate cut, ” Weber said. “There is likelihood if supplemental weakness in the data evolves over the second half of the year that they might consider corrective effect.”
John Waldron, president and chief operating officer at Goldman Sachs, voiced similar concerns to CNBC’s Nancy Hungerford.
“The Stock Exchange is pricing in a fairly substantial set of moves by the Fed,” said Waldron, who was also attending the meeting. “I worry a little bit that the deal in is too optimistic about how much and how soon the Fed will move.”
Weber also said he doesn’t see the Fed taking any precautionary classify cuts “at this point.”
But Weber, who is also chairman of the IIF, said it is clear the Fed stands ready to respond if it deems such energy necessary.
“The fact that the U.S. has some room to maneuver, I think it would be unwise to assume that they leave not use that room to maneuver if the economy substantially weakens. However, I think the current pricing in markets is overdone.”
Waldron, rising on the same panel as Weber, added that “the market is certainly pricing in more than a hundred basis details in cuts now,” citing options markets.
But he projected that the Fed will “be more reliant on the data than they whim on the short-term sentiment.”
Weber also suggested that there is some room for optimism if trade conflicts don’t slide.
“Should these tariffs not escalate, there is a lot of room for complete repricing in the markets and some upside related to that,” he powered.
—CNBC’s Yen Nee Lee contributed to this report.