Are Interest Rate Hikes Over? At Least Two Major Bank CEOs Have Doubts

"At this stage I am still not convinced that inflation is really under control," UBS CEO Sergio Ermotti said in a recent interview.

Federal Reserve Chair Jerome Powell
Federal Reserve Chair Jerome Powell hinted last week that interest rate hikes are likely over. Win McNamee/Getty Images

After nearly two years of interest rate hikes, the Federal Reserve seems to finally have inflation under control. Consumer prices in November rose 3.1 percent from a year ago, only a step away from the central bank’s goal of 2 percent, fueling hopes that we are on track for a so-called “soft landing,” where an overheated economy shifts to slow growth without going into a recession. However, at least two banking leaders are not convinced the interest rate hike cycle is over, or that inflation has truly been contained.

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“At this stage I am still not convinced that inflation is really under control…The trend seems favorable but we must see if it continues,” UBS CEO Sergio Ermotti told Swiss newspaper Le Matin Dimanche in an interview published yesterday (Dec. 17).

Ermotti, who led UBS’s turnaround in the aftermath of the 2008 Financial Crisis, returned to head the Swiss bank in March following its acquisition of Credit Suisse. “If inflation approaches the 2 percent targets in all major economies, central banks’ policies could loosen a bit,” he said in the interview. “In this environment, it is very important to remain agile.”

The European Central Bank is carefully monitoring inflation and other economic data between now and at least March before considering following its U.S. counterpart’s “dovish” pivot, Reuters reported last week, citing multiple sources.

Read Also: When Will the Fed Stop Rate Hikes? Dimon, Ackman, Dalio May Have Reached a Consensus

Last week, the Congressional Budget Office forecasted that U.S. inflation would slow toward the Fed’s 2 percent target in 2024. And Fed Chair Jerome Powell hinted interest rate cuts were coming into view in 2024.

Ermotti cautioned about the optimism. “One thing I’ve learned is that one must not try to make predictions on the coming months—it’s nearly impossible,” he said.

Ermotti was echoed by Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, one of the 12 Fed banks in the nation. In an interview with CBS’s “Face the Nation” aired yesterday, Goolsbee warned “it’s too early to declare victory” on inflation.

Goolsbee acknowledged that the Fed has “made a lot of progress.” Still, he noted that a few “concerning data points,” including rising personal and business debt and high rent prices, could still affect the economic outlook. “The thing to remember is every time in the past that the Fed or other central banks around the world have had to get inflation down a lot, it has basically always been accompanied by a major recession,” he said.

“2023 looks like it’s going to end up being a very substantial reduction in inflation without a big increase in the unemployment rate, that’s the golden path that I talked about, but we’re still above the [inflation] target,” Goolsbee continued. “Until we are convinced that we’re on path to [2 percent inflation], it’s an overstatement to be counting the chickens.”

Are Interest Rate Hikes Over? At Least Two Major Bank CEOs Have Doubts