Finance

The Fed forecasts lowering rates by another half point before the year is out

Published

9 months ago

September 18, 2024

U.S. Federal Reserve Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., July 31, 2024.

Kevin Mohatt | Reuters

The Federal Reserve projected lowering interest rates by another half point before the end of 2024, and the central bank has two more policy meetings to do so.

The so-called dot plot indicated that 19 FOMC members, both voters and nonvoters, see the benchmark fed funds rate at 4.4% by the end of this year, equivalent to a target range of 4.25% to 4.5%. The Fed’s two remaining meetings for the year are scheduled for Nov. 6-7 and Dec.17-18.

Through 2025, the central bank forecasts interest rates landing at 3.4%, indicating another full percentage point in cuts. Through 2026, rates are expected to fall to 2.9% with another half-point reduction.

“There’s nothing in the SEP (Summary of Economic Projections) that suggests the committee is in a rush to get this done,” Fed Chairman Jerome Powell said in a press conference. “This process evolves over time.”

The central bank lowered the federal funds rate to a range between 4.75%-5% on Wednesday, its first rate cut since the early days of the Covid pandemic.

Here are the Fed’s latest targets:

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The Fed officials hiked their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June.

Meanwhile, they lowered the inflation outlook to 2.3% from 2.6% previous. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.

— CNBC’s Jeff Cox contributed reporting.

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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.”