Finance

Philadelphia Fed President Harker advocates for interest rate cut in September

Published

10 months ago

August 22, 2024

Philadelphia Fed President Patrick Harker: Job market revisions weren't a surprise

Philadelphia Federal Reserve President Patrick Harker on Thursday provided a strong endorsement to an interest rate cut on the way September.

Speaking to CNBC from the Fed’s annual retreat in Jackson Hole, Wyoming, Harker gave the most direct statement yet from a central bank official that monetary policy easing is almost a certainty when officials meeting again in less than a month.

The position comes a day after minutes from the last Fed policy meeting gave a solid indication of a cut ahead, as officials gain more confidence in where inflation is headed and look to head off any potential weakness in the labor market.

“I think it means this September we need to start a process of moving rates down,” Harker told CNBC’s Steve Liesman during a “Squawk on the Street” interview. Harker said the Fed should ease “methodically and signal well in advance.”

With markets pricing in a 100% certainty of a quarter percentage point, or 25 basis point, cut, and about a 1-in-4 chance of a 50 basis point reduction, Harker said it’s still a toss-up in his mind.

“Right now, I’m not in the camp of 25 or 50. I need to see a couple more weeks of data,” he said.

The Fed has held its benchmark overnight borrowing rate in a range between 5.25%-5.5% since July 2023 as it tackles a lingering inflation problem. Markets briefly rebelled after the July Fed meeting when officials signaled they still had not seen enough evidence to start bringing down rates.

However, since then policymakers have acknowledged that it soon will be appropriate to ease. Harker said policy will be made independently of political concerns as the presidential election looms in the background.

“I am very proud of being at the Fed, where we are proud technocrats,” he said. “That’s our job. Our job is to look at the data and respond appropriately. When I look at the data as a proud technocrat, it’s time to start bringing rates down.”

Harker does not get a vote this year on the rate-setting Federal Open Market Committee but still has input at meetings. Another nonvoter, Kansas City Fed President Jeffrey Schmid, also spoke to CNBC on Thursday, offering a less direct take on the future of policy. Still, he leaned toward a cut ahead.

Watch CNBC's full interview with Kansas City Fed President Jeffrey Schmid

Schmid noted the rising unemployment rate as a factor in where things are going. A severe supply-demand mismatch in the labor market had helped fuel the run in inflation, pushing wages up and driving inflation expectations. In recent months, though, jobs indicators have cooled and the unemployment rate has climbed slowly but steadily.

“Having the labor market cool some is helping, but there’s work to do,” Schmid said. “I really do believe you’ve got to start looking at it a little bit harder relative to where this 3.5% [unemployment] number was and where it is today in the low 4s.”

However, Schmid said he believes banks have held up well under the high-rate environment and said he does not believe monetary policy is “over-restrictive.”

Harker next votes in 2026, while Schmid will get a vote next year.

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Finance

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

Published

2 days 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.”