Finance

Fed holds interest rates steady

Published

3 months ago

March 19, 2025

Fed leaves rates unchanged, still sees additional cuts coming

WASHINGTON – The Federal Reserve in a closely watched decision Wednesday held the line on benchmark interest rates though still indicated that reductions are likely later in the year.

Faced with pressing concerns over the impact tariffs will have on a slowing economy, the rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. Markets had been pricing in virtually zero chance of a move at this week’s two-day policy meeting.

Along with the decision, officials updated their rate and economic projections for this year and through 2027 and altered the pace at which they are reducing bond holdings.

Despite the uncertain impact of President Donald Trump‘s tariffs as well as an ambitious fiscal policy of tax breaks and deregulation, officials said they still see another half percentage point of rate cuts through 2025. The Fed prefers to move in quarter percentage point increments, so that would mean two cuts this year.

In its post-meeting statement, the FOMC noted an elevated level of ambiguity surrounding the current climate.

“Uncertainty around the economic outlook has increased,” the document stated. “The Committee is attentive to the risks to both sides of its dual mandate.”

The Fed is charged with the twin-goals of maintaining full employment and low prices.

The committee downgraded its collective outlook for economic growth and gave a bump higher to its inflation projection. Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December. On inflation, core prices are expected to grow at a 2.8% annual pace, up 0.3 percentage point from the previous estimate.

According to the “dot plot” of officials’ rate expectations, the view is turning somewhat more hawkish on rates from December. At the previous meeting, just one participant saw no rate changes in 2025, compared to four now.

The grid showed rate expectations unchanged over December for future years, with the equivalent of two cuts expected in 2026 and one more in 2027 before the fed funds rate settles in at a longer-run level around 3%.

In addition to the rate decision, the Fed announced a further scaling back of its “quantitative tightening” program in which it is slowly reducing the bonds it holds on its balance sheet.

The central bank now will allow just $5 billion in maturing proceeds from Treasurys to roll off each month, down from $25 billion. However, it left a $35 billion cap on mortgage-backed securities unchanged, a level it has rarely hit since starting the process.

Fed Governor Christopher Waller was the lone dissenting vote for the Fed’s move. However, the statement noted that Waller favored holding rates steady but wanted to see the QT program go on as before.

The Fed’s actions follow a hectic beginning to President Donald Trump’s second term in office. The Republican has rattled financial markets with tariffs implemented thus far on steel, aluminum and an assortment of other goods against U.S. global trading partners.

In addition, the administration is threatening another round of even more aggressive duties following a review that is scheduled for release April 2.

An uncertain air over what is to come has dimmed the confidence of consumers, who in recent surveys have jacked up inflation expectations because of the tariffs. Retail spending increased in February, albeit less than expected though underlying indicators showed that consumers are still weathering the stormy political climate.

Stocks have been fragile since Trump assumed office, with major averages dipping in and out of correction territory as administration officials cautioned about an economic reset away from government-fueled stimulus and towards a more private sector-oriented approach.

Bank of America CEO Brian Moynihan earlier Wednesday countered much of the gloomy talk recently around Wall Street. The head of the second-largest U.S. bank by assets said card data shows spending is continuing at a solid pace, with BofA’s economists expecting the economy to grow around 2% this year.

However, some cracks have been showing in the labor market.

Nonfarm payrolls grew at a slower-than-expected pace in February and a broad measure of unemployment that includes discouraged and underemployed workers jumped a half percentage point during the month to its highest level since October 2021.

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

Published

1 day 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.”