Finance

Fed Governor Waller says inflation softening faster than he expected put him in half-point-cut camp

Published

9 months ago

September 20, 2024

Fed Governor Waller says inflation softening faster than he expected put him in half-point-cut camp

Federal Reserve Governor Christopher Waller said Friday he supported a half percentage point rate cut at this week’s meeting because inflation is falling even faster than he had expected.

Citing recent data on consumer and producer prices, Waller told CNBC that the data is showing core inflation, excluding food and energy, in the Fed’s preferred measure is running below 1.8% over the past four months. The Fed targets annual inflation at 2%.

“That is what put me back a bit to say, wow, inflation is softening much faster than I thought it was going to, and that is what put me over the edge to say, look, I think 50 [basis points] is the right thing to do,” Waller said during an interview with CNBC’s Steve Liesman.

Both the consumer and producer price indexes showed increases of 0.2% for the month. On a 12-month basis, the CPI ran at a 2.5% rate.

However, Waller said the more recent data has shown an even stronger trend lower, thus giving the Fed space to ease more as it shifts its focus to supporting the softening labor market.

A week before the Fed meeting, markets were overwhelmingly pricing in a 25 basis point cut. A basis point equals 0.01%.

“The point is, we do have room to move, and that is what the committee is signaling,” he said.

The Fed’s action to cut by half a percentage point, or 50 basis points, brought its key borrowing rate down to a range between 4.75%-5%. Along with the decision, individual officials signaled the likelihood of another half point in cuts this year, followed by a full percentage point of reductions in 2025.

Fed Governor Michelle Bowman was the only Federal Open Market Committee member to vote against the reduction, instead preferring a smaller quarter percentage point cut. She released a statement Friday explaining her opposition, which marked the first “no” vote by a governor since 2005.

“Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5 percent, I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate,” Bowman said.

As for the future path of rates, Waller indicated there are a number of scenarios that could unfold, with each depending on how the economic data runs.

Futures market pricing shifter after Waller spoke, with traders now pricing in about a 50-50 chance of another half percentage point reduction at the Nov. 6-7 meeting, according to the CME Group’s FedWatch.

“I was a big advocate of large rate hikes when inflation was moving much, much faster than any of us expected,” he said. “I would feel the same way on the downside to protect our credibility of maintaining a 2% inflation target. If the data starts coming in soft and continues to come in soft, I would be much more willing to be aggressive on rate cuts to get inflation closer to our target.”

The Fed gets another look at inflation data next week when the Commerce Department releases the August report on the personal consumption expenditures price index, the central bank’s preferred measure. Chair Jerome Powell said Wednesday that the Fed’s economists expect the measure to show inflation running at a 2.2% annual pace. A year ago, it had been at 3.3%.

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June 6, 2025

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Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

23 hours ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”