Jamie Dimon, CEO of JPMorgan Chase speaking with CNBC’s Leslie Picker in Bozeman, MT on Aug. 2nd, 2023.
CNBC
JPMorgan Chase CEO Jamie Dimon on Tuesday warned about the dangers of locking in an outlook about the economy, particularly considering the poor recent track record of central banks like the Federal Reserve.
In the latest of multiple warnings about what lies ahead from the head of the largest U.S. bank by assets, he cautioned that myriad factors playing out now make things even more difficult.
“Prepare for possibilities and probabilities, not calling one course of action, since I’ve never seen anyone call it,” Dimon said during a panel discussion at the Future Investment Initiative summit in Riyadh, Saudi Arabia.
“I want to point out the central banks 18 months ago were 100% dead wrong,” he added. “I would be quite cautious about what might happen next year.”
The comments reference back to the Fed outlook in early 2022 and for much of the previous year, when central bank officials insisted that the inflation surge would be “transitory.”
Along with the misdiagnosis on prices, Fed officials, according to projections released in March 2022, collectively saw their key interest rate rising to just 2.8% by the end of 2023 — it is now north of 5.25% — and core inflation at 2.8%, 1.1 percentage points below its current level as measured by the central bank’s preferred gauge.
Dimon criticized “this omnipotent feeling that central banks and governments can manage through all this stuff. I’m cautious.”
Much of Wall Street has been focused on whether the Fed might enact another quarter percentage point rate hike before the end of 2023. But Dimon said, “I don’t think it makes a piece of difference whether the rates go up 25 basis points or more, like zero, none, nada.”
In other recent warnings, Dimon warned of a potential scenario in which the fed funds rate could eclipse 7%. When the bank released its earnings report earlier this month, he cautioned that, “This may be the most dangerous time the world has seen in decades.”
“Whether the whole curve goes up 100 basis points, I would be prepared for it,” he added. “I don’t know if it’s going to happen, but I look at what we’re seeing today, more like the ’70s, a lot of spending, a lot of this can be wasted.” (One basis point equals 0.01%.)
Elsewhere in finance, Dimon said he supports ESG principles but criticized the government for playing “whack-a-mole” with no concerted strategy.
“You can’t build pipelines to reduce coal emissions. You can’t get the permits to build solar and wind and things like that,” he said. “So we better get our act together.”
U.S. Federal Reserve Chairman Jerome Powell holds a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, U.S, September 20, 2023.
Evelyn Hockstein | Reuters
Federal Reserve Chair Jerome Powell is set to deliver what could be a key policy address Thursday, in which he will be tasked with convincing markets the central bank is committed to keep hammering away at inflation, but perhaps now needs a little less force.
The top monetary policymaker will speak at noon ET to the Economic Club of New York at a critical time for the U.S. economy.
Inflation numbers have been improving lately, but Treasury yields have been surging, sending conflicting messages about where monetary policy might be headed. Markets largely expect the Fed to stay on hold with rates, but they will be looking to Powell for confirmation and clarification on how officials view both current conditions and longer-term trends.
“Powell is always tacking back to whatever helps feed the narrative that they need to stay vigilant, and for understandable reasons,” said Luke Tilley, chief economist at Wilmington Trust. “I just expect him to keep talking about the strength of the economy and the surprising strength of the consumer in the third quarter as a risk for inflation. That is enough ammunition to keep talking about staying vigilant.”
Essentially, Tilley expects the Powell message to break into three parts: The Fed needed to get rates high quickly, which it did; that it had to find a peak level, which is part of the current debate; and that it needs to figure out how long rates need to stay this high to get inflation back to its 2% target.
“Really, their ultimate goal is to keep financial conditions tight so inflation comes down,” he said. “He’s going to use that framework, even if he’s dovish about Nov. 1 [the next Fed rate decision] or December to shift the hawkishness to that third question of how long to keep them this high.”
“Higher for longer” has become an unofficial mantra in recent days, with Philadelphia Fed President Patrick Harker earlier this week mentioning the term specifically for how he feels about policy.
Harker was one of several Fed officials, including governors Philip Jefferson, who spoke earlier this month, and Christopher Waller, who spoke Wednesday, to advocate holding off on rate hikes at least in the immediate future while they weigh the impact of incoming data. Waller said the Fed can “wait, watch and see” before it moves on rates.
Powell is expected to join the chorus Thursday, even if his message is filled with caveats about not becoming complacent in the fight against inflation.
“Powell has to present himself to investors as the dispassionate neutral leader and allow [others] to be more aggressive,” said Jeffrey Roach, chief economist for LPL Financial. “They’re not going to declare victory, and that is one reason why Powell is going to continue to talk somewhat hawkish.”
To that point, New York Fed President John Williams on Wednesday moved some of the way there, when he repeated another familiar mantra, that the Fed will have to keep the “restrictive stance of policy in place for some time” to deal with inflation, according to a Reuters report.
Like the other speakers, Powell likely will reiterate a data-dependent focus for the Fed after a much more aggressive path in which it has raised its benchmark borrowing rate 11 times for a total of 5.25 percentage points, its highest level in 22 years. The Fed opted not to hike in September.
He also, though, will be looked to for some guidance as to how he feels about rising yields, in light of the 10-year Treasury having inched closer to 5% — its highest point in 16 years.
The chair “will stick to the message … that the data has been coming in stronger than expected, but there has also been a big move in yields, which has tightened financial conditions, so no urgency for a policy response in November and the Fed can adopt a wait-and-see approach,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note.
Guha said that a Fed on hold now will only be a “down payment” on “extra cuts” in rates for 2024 as inflation and economic growth both weaken.
U.S. Treasury yields rose on Wednesday with the 10-year hitting a fresh multiyear high as investors digested the latest economic data and considered the outlook for Federal Reserve interest rates.
The 10-year Treasury yield gained nearly 7 basis points to 4.911%, putting it above 4.9% for the first time since 2007. Meanwhile, the 2-year Treasury yield was trading almost 2 basis points up at 5.231%, around levels last seen in 2006.
Also notably, the 5-year Treasury moved as high as 4.937%, its top level since 2007.
Yields and prices move in opposite directions and one basis point equals 0.01%.
Investors considered fresh economic data as uncertainty about the path ahead for Fed monetary policy grew in recent weeks.
Housing starts accelerated in September, but rose as a slower-than-expected rate, according to data released Wednesday. Building permits fell in the month, but lost less than economists anticipated.
Retail sales figures for September, which were published Tuesday, increased by 0.7% for the month. That’s far higher than the 0.3% anticipated by economists surveyed by Dow Jones, and indicates resilience from consumers in light of higher interest rates and other economic pressures.
The data brought up renewed concerns over the outlook for interest rates, with some investors viewing it as an indication that rates may be hiked further or at least kept elevated for longer.
Markets are still pricing in a 90% chance that rates will remain unchanged when the Fed announces its next monetary decision on Nov. 1, but the probability of a December rate increase rose after Tuesday’s data, according to the CME Group’s FedWatch tool.
In recent days and weeks, various Fed officials have indicated that the central bank may be done hiking, especially as higher Treasury yields are contributing to tighter economic conditions. Further comments from policymakers are expected this week, including by Fed Chairman Jerome Powell, and investors are looking to their comments for hints about their policy expectations.
Upcoming economic data may also influence opinion among both investors and Fed officials.
An undated editorial photo of Chinese yuan cash bills and the flag of the People’s Republic of China.
Javier Ghersi | Moment | Getty Images
China’s consumer prices were flat in September, while factory gate prices saw annual declines slow for a third month — pointing to the uneven post-Covid recovery in the world’s second-largest economy that may require further policy support.
Consumer price index for September was flat on an annual basis, the National Bureau of Statistics reported Friday, below than the median estimate for a 0.2% increase in a Reuters poll. CPI inched up 0.1% in August for the first year-on-year increase in three months.
Core inflation — excluding energy and food prices — however, climbed 0.8% in September from a year earlier, the bureau said in a separate statement. This rate of increase was similar to the one recorded in August.
China’s producer price index fell 2.5% from a year earlier, weaker than expectations for a 2.4% decline, after a 3% drop in August. The drop in factory prices, though, was the smallest in seven months.
Tepid prices underscore what China’s top leaders labeled as a “tortuous” economic recovery after the country emerged from its draconian zero Covid curbs toward the end of last year. China stands as a stark outlier among the world’s major economies that are mostly still battling stubbornly high inflation after the Covid-19 pandemic peaked.
The recovery of domestic demand is not strong, without a significant boost from fiscal support.
Zhiwei Zhang
Pinpoint Asset Management
Friday’s inflation print may reignite fears that China is tethering on the verge of deflation. Despite narrowing producer prices in September, the decline is still its 12th straight monthly drop on an annualized basis.
“CPI inflation at zero indicates the deflationary pressure in China is still a real risk to the economy,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
“The recovery of domestic demand is not strong, without a significant boost from fiscal support. The damage from the property sector slowdown on consumer confidence continue[s] to weigh on household demand,” he added.
Beijing has been rather targeted in its policy support even as rafts of economic data suggested growth remains sluggish. An ongoing debt crisis in two of China’s largest real estate developers has further dented consumer confidence.
Weaker food prices were a big drag on September’s consumer prices, though China’s National Bureau of Statistics said this was due to high food prices last year.
On Friday, official data showed China food prices collectively fell 3.2% in September from a year earlier.
In particular, the price of pork — a key staple meat in Chinese diets — tumbled 22% last month from a year ago. That’s as the price of livestock and meat collectively dropped 12.8% and the price of fresh vegetables fell 6.4%.
Services inflation was at a 19-month high of 1.3%, Capital Economics said.
“This suggests that China’s low inflation rate is not primarily due to domestic weakness,” the firm’s Zichun Huang said in a note. “Instead, it appears to be related to excess capacity in industry as the pandemic boom in global goods demand has reversed.
Core goods inflation remained subdued at 0.3% year-on-year, Huang noted.
Month-on-month, consumer prices edged up 0.2% in September, with food prices increasing 0.3% — representing a decrease of 0.2 percentage points from August’s print compared to the previous month.
“The market supply is relatively sufficient before the Mid-Autumn Festival and National Day this year, and the food price increase is slightly lower than the historical average for the same period,” said Dong Lijuan, chief statistician of the Urban Department of the National Bureau of Statistics, in a statement.
China’s Mid-Autumn Festival and National Day were in early October this year.
A pedestrian walks past the Bank of Japan (BoJ) building in central Tokyo on July 28, 2023.
Richard A. Brooks | Afp | Getty Images
The Bank of Japan announced it’s increasing its bond purchases at Wednesday’s auction, as a spike in government bond yields tests its resolve to defend its yield curve control policy.
In a statement Monday, the Japanese central bank said it will conduct an unspecific amount of additional purchases of Japanese government bonds with tenures of more than five years and up to 10 years. This adds to the BOJ’s reported 300 billion yen Friday bond purchase with similar maturities.
Yields on 10-year Japanese government bonds hit as much as 0.775% Monday, its highest since September 2013 and nearing the BOJ’s hard 1% cap. The Japanese yen shed nearly 0.3% to about 149.73 yen against the dollar, nearing the 150 yen level that prompted BOJ intervention last year.
Hawkish comments in the minutes of a lively BOJ September policy meeting released earlier Monday reignited expectations the BOJ is slowly laying the groundwork for the end to negative interest rates.
At its policy meeting in July, the BOJ loosened its yield curve control to allow longer term rates to move more in tandem with rising inflation in Governor Kazuo Ueda’s first policy change since assuming office in April.
The move to broaden the permissible range for 10-year JGB yields from plus and minus 0.5 percentage point around its 0% target to 1 percentage point was seen as the start of a gradual departure from the yield curve control policy enacted by Ueda’s predecessor.
The yield curve control, known also as the YCC, is a policy tool where the central bank targets an interest rate, and then buys and sells bonds as necessary to achieve that target. It’s part of the BOJ’s ultra-loose monetary policy, which also includes keeping short-term interest rates at -0.1% in its attempts to combat decades of deflation in the world’s third-largest economy.
On Monday, a comment by an unnamed policymaker in the September BOJ meeting minutes that “the achievement of 2 percent inflation in a sustainable and stable manner seems to have clearly come in sight” partly added to the yield spike.
At the September meeting though, the BOJ eventually decided to maintain its ultra-loose policy and left rates unchanged on Friday, mindful of the “extremely high uncertainties” on the growth outlook domestically and globally.
Despite core inflation exceeding the central bank’s stated 2% target for 17 consecutive months, BOJ officials have been cautious about exiting its radical stimulus.
This is due to what the BOJ sees as a lack of sustainable inflation, deriving from meaningful wage growth that it believes would lead to a positive chain effect supporting household consumption and economic growth.
Still, the Bank of Japan could be forced into hiking rates sooner than expected if the Japanese yen weakens beyond 150 against the dollar, according to Bob Michele, global head of fixed income at JPMorgan Asset Management.
Higher rates could then unwind the yen carry trade and spark a return of Japanese capital to its domestic bond markets, a move that could trigger market volatility, he told CNBC last Thursday.
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Cautious markets U.S. stocks fell for a third consecutive day as Treasury yields continued rising to multiyear highs. Asia-Pacific markets were mixed Friday. Hong Kong’s Hang Seng Index rose almost 1% as the city’s inflation held steady at 1.8% in August. Meanwhile, Japan’s Nikkei 225 lost 0.42% after the country’s central bank maintained its negative interest rates.
Holding fast The Bank of Japan left its ultra-loose monetary policy untouched at its Friday meeting. That is, the bank kept its short-term interest rates at -0.1% and maintained the cap of its 10-year Japanese government bond yield at around zero. But with the Japanese yen weakening against the U.S. dollar in recent weeks, economists think the BOJ might be forced to tighten policy sooner than expected.
Securing business and the internet Cisco is acquiring Splunk, a cybersecurity software company, for $157 a share in a cash deal. The total deal’s worth $28 billion — about 13% of Cisco’s market capitalization — making it the company’s largest acquisition ever. Cisco’s known for making computer networking equipment, but has been boosting its cybersecurity business recently to grow its revenue stream.
New top of the class Singapore is the world’s freest economy, according to a 2023 report by Canada think tank Fraser Institute. It’s the first time since 1970, when the rankings started, that Hong Kong lost its top spot. “Hong Kong’s recent turn is an example of how economic freedom is intimately connected with civil and political freedom,” said Fraser Institute’s senior fellow, Matthew Mitchell.
[PRO] Value over growth U.S. markets have been having two bad months. Growth-focused technology stocks, in particular, are struggling in an environment of higher-for-longer interest rates. But that means the time’s ripe to look at European value stocks. Here’s a list of 10 stocks Citi analysts recommend — comprising a mix of quality and risky ones with more potential upside.
Four months after hype over artificial intelligence fired up markets, the rally’s starting to look more like a hallucination — a confident but false claim AI models are prone to making.
For evidence, look no further than Nvidia, the spark that ignited the whole blaze. Shares of the chipmaker peaked on Aug. 24 and have tumbled 18.4% since. While it’s true Nvidia’s still up 181% for the entire year, that’s 60 percentage points lower than its August peak, when shares were 244% higher.
Microsoft’s announcement of a broad rollout of Copilot — the company’s AI tool — to corporate clients didn’t stoke excitement. On the contrary, Microsoft shares dipped 0.39% after the company’s event. By contrast, recall how share prices popped to a record in May after the company announced the pricing of the Copilot subscription service.
In short, investor interest in AI — while still hot in comparison with other sectors — looks like it’s simmering down.
“The combination of waning retail demand and cautious risk sentiment among institutional investors may pose a substantial risk to the AI sector, potentially heralding a pronounced reversal in the weeks ahead,” said Vanda Research’s senior vice president Marco Iachini.
Blame the usual suspects for this lukewarm sentiment. Higher-for-longer interest rates — and Treasury yields — caused by spiking oil prices and a tight labor market. (Initial jobless claims for last week dropped to their lowest level since late January, according to the U.S. Labor Department.)
Against that backdrop, it’s unsurprising major indexes had a bad day. The Dow Jones Industrial Average fell 1.08%, the Nasdaq Composite slid 1.82% and the S&P 500 lost 1.64%, the most in a day since March. All three indexes are poised for a losing week, with the tech-heavy Nasdaq the deepest in the red so far.
If it’s any comfort, September — the worst month for stocks, historically — ends in a week. Investors will hope it’ll pass like a bad dream, or a banished hallucination.
The Bank of Japan could be forced into hiking rates sooner than expected, if the Japanese yen weakens beyond 150 to the dollar.
Higher rates could then unwind the yen carry trade and spark a return of Japanese capital to its domestic bond markets, a move that could trigger market volatility.
The BOJ stands as an outlier as major central banks have hiked rates aggressively to combat burgeoning inflation. Decades of accommodative monetary policy in Japan — even as other global central banks tightened policy in the last 12 months — have concentrated carry trades in the Japanese yen.
Carry trades involve borrowing at a lower interest rate to invest in other assets that promise higher returns.
The Japanese yen slipped about 0.4% to around 148.16 against the dollar on Friday after the BOJ kept its negative rates unchanged, after the yen tested its lowest in almost 10 months at 148.47 per dollar Thursday.
The Japanese currency is under renewed pressure after the U.S. Federal Reserve on Wednesday held interest rates, and indicated it expects one more hike by year’s end. The yen has now weakened more than 11% against the greenback this year to date.
“I think where their hand could be forced is looking at dollar-yen. We’re awfully close to 150 … when that starts to get to 150 and higher, then they have to step back and think: the selloff in the yen is now starting to import probably more inflation than we want,” Bob Michele, global head of fixed income at JP Morgan Asset Management, told CNBC Thursday before the rate decision.
While a weaker yen makes Japanese exports cheaper, it also makes imports more expensive, given that most major economies are struggling to contain stubbornly high inflation.
“So, it may give them cover to start hiking rates sooner than the market’s expecting,” Michele added.
An electronic quotation board displays the yen’s rate 145 yen level against the US dollar at a foreign exchange brokerage in Tokyo on September 22, 2022.
Str | Afp | Getty Images
The BOJ had in July loosened its yield curve control to broaden the permissible range for 10-year Japanese government bond yields of around plus and minus 0.5 percentage points from its 0% target to 1% in Governor Kazuo Ueda’s first policy change since assuming office in April.
Yield curve control, the so-called YCC, is a policy tool where the central bank targets an interest rate, and then buys and sells bonds as necessary to achieve that target.
Economists have been watching for more changes to the BOJ’s yield curve control policy, part of the Japanese central bank’s efforts to reflate growth in the world’s third-largest economy and sustainably achieve its 2% inflation target after years of deflation.
Expectations of a quicker exit from the BOJ’s ultra-loose monetary policy spiked after Ueda told Yomiuri Shimbun in an interview published Sept. 9 that the BOJ could have sufficient data by the end of this year to determine when to end negative rates.
After that report, many economists brought forward their forecasts for policy tightening to sometime in the first half of 2024.
Central bank officials have been cautious about exiting its ultra-loose policy, even though core inflation has exceeded the BOJ’s stated 2% target for 17 consecutive months.
This is due to what the BOJ sees as a lack of sustainable inflation, deriving from meaningful wage growth that it believes would lead to a positive chain effect supporting household consumption and economic growth.
But there are inherent risks when the BOJ finally decides to tighten rates.
“Japan has been the mother of the carry trade for decades now and so much capital has been funded at a very low cost in Japan and exported to foreign markets,” Michele said.
With 10-year JGB yields hitting its highest in a decade at about 0.745% Thursday, Japanese investors have been starting to unwind positions across various asset classes in various foreign markets that used to offer better returns in the past.
“I worry as the yield curve normalizes and rates go up, you could see a decade — or longer — of repatriation,” he added. “This is the one risk I worry about.”
Signage for Nvidia Corp. during the Taipei Computex expo in Taipei, Taiwan, on Tuesday, May 30, 2023.
Hwa Cheng | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Infectious pessimism U.S. stocks fell for a third consecutive day as Treasury yields continued rising to multiyear highs. The pan-European Stoxx 600 slumped 1.3% amid a flurry of central bank decisions. Sweden hiked rates by 25 basis points to 4%; Norway raised its rate from 4% to 4.25%; Switzerland kept rates unchanged. For more central bank decisions, see below.
A halt and a big hike The Bank of England elected to keep interest rates unchanged at its September meeting, breaking a series of 14 straight rate hikes. But the decision wasn’t unanimous: Four out of nine members voted for another 25-basis-point hike to 5.5%. In other central bank news, Turkey hiked its interest rate to 30%, a 5-percentage-point jump from 25%.
Securing business and the internet Cisco is acquiring Splunk, a cybersecurity software company, for $157 a share in a cash deal. The total deal’s worth $28 billion — about 13% of Cisco’s market capitalization — making it the company’s largest acquisition ever. Cisco’s known for making computer networking equipment, but has been boosting its cybersecurity business recently to grow its revenue stream.
Succession Rupert Murdoch is stepping down as chairman of the board of Fox Corp and News Corp in November. The 92-year-old will be succeeded by his son Lachlan Murdoch. Fox Corp is the parent company of Fox News, a TV channel embroiled in a $787.5 million settlement this year over false claims that Dominion Voting Systems’ machines swayed the 2020 U.S. presidential election.
[PRO] ‘Uninvestable’ banking sector Steve Eisman, the investor who called — and profited from — the subprime mortgage crisis that began in 2007, thinks “the whole bank sector is uninvestable.” Silicon Valley Bank collapsed in March this year, sparking panic and causing depositors to withdraw money at other regional banks. But that’s not the only risk to banks weighing on Eisman’s mind.
Four months after hype over artificial intelligence fired up markets, the rally’s starting to look more like a hallucination — a confident but false claim AI models are prone to making.
For evidence, look no further than Nvidia, the spark that ignited the whole blaze. Shares of the chipmaker peaked on Aug. 24 and have tumbled 18.4% since. While it’s true Nvidia’s still up 181% for the entire year, that’s 60 percentage points lower than its August peak, when shares were 244% higher.
Microsoft’s announcement of a broad rollout of Copilot — the company’s AI tool — to corporate clients didn’t stoke excitement. On the contrary, Microsoft shares dipped 0.39% after the company’s event. By contrast, recall how share prices popped to a record in May after the company announced the pricing of the Copilot subscription service.
In short, investor interest in AI — while still hot in comparison with other sectors — looks like it’s simmering down.
“The combination of waning retail demand and cautious risk sentiment among institutional investors may pose a substantial risk to the AI sector, potentially heralding a pronounced reversal in the weeks ahead,” said Vanda Research’s senior vice president Marco Iachini.
Blame the usual suspects for this lukewarm sentiment. Higher-for-longer interest rates — and Treasury yields — caused by spiking oil prices and a tight labor market. (Initial jobless claims for last week dropped to their lowest level since late January, according to the U.S. Labor Department.)
Against that backdrop, it’s unsurprising major indexes had a bad day. The Dow Jones Industrial Average fell 1.08%, the Nasdaq Composite slid 1.82% and the S&P 500 lost 1.64%, the most in a day since March. All three indexes are poised for a losing week, with the tech-heavy Nasdaq the deepest in the red so far.
If it’s any comfort, September — the worst month for stocks, historically — ends in a week. Investors will hope it’ll pass like a bad dream, or a banished hallucination.
For households, that offers little relief from sky-high borrowing costs.
Altogether, Fed officials have raised rates 11 times in a year and a half, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years.
“I’m worried for the consumer,” said Tomas Philipson, University of Chicago economist and a former chair of the White House Council of Economic Advisers. “People are hit on both fronts — lower real wages and higher rates.”
Since wage growth for many Americans hasn’t been able to keep pace with higher prices, those households are getting squeezed and are going into debt just when borrowing rates are spiking, Philipson said.
Real average hourly earnings fell 0.5% in August, while borrowers are paying more on credit cards, student loans and other types of debt.
“Borrowing is very expensive, period,” Philipson said.
The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
Here’s a breakdown of how the central bank’s increases so far have affected consumers:
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did as well, and credit card rates followed suit.
Credit card annual percentage rates are now more than 20%, on average — an all-time high. Further, with most people feeling strained by higher prices, more cardholders carry debt from month to month.
For those who carry a balance, there’s not much relief in sight, according to Matt Schulz, chief credit analyst at LendingTree.
“Even though the Fed chose not to raise rates in September, the truth is that no one should expect credit card interest rates to stop rising anytime soon,” he said.
In the meantime, knocking down that debt “should absolutely be the goal,” he said.
Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist.
“The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated,” he said.
Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year after an initial fixed-rate period. But a HELOC rate adjusts right away. Already, the average rate for a HELOC is up to 9.12%, the highest in 22 years, according to Bankrate.
“That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” said Greg McBride, chief financial analyst at Bankrate.com.
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.
The average rate on a five-year new car loan is now 7.46%, the highest in 15 years, according to Bankrate.
Experts say consumers with higher credit scores may be able to secure better loan terms or shop around for better deals. Car buyers could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to a recent report from LendingTree.
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
For those with existing debt, interest is now accruing again as of Sept. 1. In October, millions of borrowers will make their first student loan payment after a three-year pause.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.43%, on average, according to the Federal Deposit Insurance Corp.
Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.
Because the top online savings accounts are currently beating inflation, “money in a savings account is no longer a drag on your portfolio,” McBride said. And yet, only 22% of savers are earning 3% or more on their accounts, according to another Bankrate report.
“Boosting emergency savings is rewarded with returns exceeding 5%, if you’re putting the money in the right place,” McBride said.
A shopper browses fruit and vegetables for sale at an indoor market in Sheffield, UK. The OECD recently predicted that the UK will experience the highest inflation among all advanced economies this year.
Bloomberg | Bloomberg | Getty Images
U.K. inflation surprised with a dip to 6.7% in August, below expectations and sparking increased bets on a pause in interest rate hikes from the Bank of England on Thursday.
On a monthly basis, the headline consumer price index (CPI) rose by 0.3%.
Economists polled by Reuters expected the headline figure to come in at 7% annually and up 0.7% month-on-month amid a slight uptick in prices at the pump. July saw a 6.8% annual rise and a 0.4% month-on-month decline.
“The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, where prices rose by less in August 2023 than a year ago, and accommodation services, where prices can be volatile and fell in August 2023,” the Office for National Statistics said.
“Rising prices for motor fuel led to the largest upward contribution to the change in the annual rates.”
Core CPI — which excludes volatile food, energy, alcohol and tobacco prices — came in at 6.2% in the 12 months to the end of August, down from 6.9% in July. The goods rate rose slightly from 6.1% to 6.3% but was more than offset by the services rate slowing significantly from 7.4% to 6.8%.
Raoul Ruparel, director of Boston Consulting Groups’ Centre for Growth, said this unexpected fall in core inflation would be particularly welcomed by policymakers, along with signs that retail prices are beginning to ease for consumers.
“This, combined with nominal wage growth, suggests real wages will continue to pick up towards the end of the year. Together, this will be a relief for households, but it is also a further sign that the economy looks to be slowing,” Ruparel said in an email on Wednesday.
“We believe the Bank of England will still raise rates tomorrow, but today’s data will embolden those pushing for this to be the final rate hike. However, it also highlights the challenge for the Bank of England with the economy now showing signs of cooling and the full impact of the rate rises not being felt.”
The Bank of England will announce its next monetary policy decision on Thursday, as policymakers continue efforts to pull inflation back down towards the Bank’s 2% target.
The market has broadly priced in another 25-basis-point hike to interest rates, which would take the main bank rate to 5.5% — its highest level since December 2007.
In light of the downside inflation surprise on Wednesday, market pricing for a pause from the Bank of England jumped from 20% to almost 50% at around 7:40 a.m. London time.
Caroline Simmons, U.K. chief investment officer at UBS, told CNBC that the central bank will still most likely hike on Thursday.
“We do believe that’s going to be their last hike, however, because we do have these downward forces on inflation,” she added.
“I think the recent rise in the oil price made people nervous that the print this morning might not continue to fall, which is why people sort of had more upside risk to their numbers, but I think the general trend is down.”
President of the European Central Bank (ECB) Christine Lagarde gestures as she addresses a press conference following the meeting of the governing council of the ECB in Frankfurt am Main, western Germany, on July 27, 2023.
Daniel Roland | Afp | Getty Images
The European Central Bank on Thursday announced a 10th consecutive hike in its main interest rate, as the fight against inflation took precedence over a weakening economy.
Rate raises have now hauled the central bank’s main deposit facility from -0.5% in June 2022 to a record 4%. A key reason for the hike Thursday appeared to be upward revisions in newly published staff macroeconomic projections for the euro area, which see inflation averaging at 5.6% this year from a prior forecast of 5.4%, and 3.2% next year from a prior forecast of 3%.
However, it nudged its closely-watched medium-term forecast lower, from 2.2% to 2.1%.
In a market-moving statement, it also indicated that further hikes may be off the table for now.
“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,” it said.
“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”
The euro fell sharply on the announcement and was down 0.5% against the U.S. dollar at $1.0686 at 3 p.m. Frankfurt time, trading at a three-month low.
European stocks rallied following cautious trading through the morning, meanwhile, with the benchmark Stoxx 600 index up by 1.1%.
The ECB move on Thursday also takes the interest rates on its main refinancing operations and marginal lending facility 25 basis points higher, to 4.5% and 4.75%, respectively.
Staff also lowered economic growth projections for the euro area from 0.9% to 0.7% expansion in 2023, from 1.5% to 1% in 2024, and from 1.6% to 1.5% in 2025.
While the ECB has firmly signaled its next moves in previous meetings, economists and analysts were divided over whether the doves or hawks in Frankfurt would win out at this September meeting. Money markets indicated a roughly 63% chance of a hike through Thursday morning, up from a more even split in recent days.
Oil market reports suggesting tighter supply and higher prices through the rest of the year and beyond have fueled inflation fears, along with signs of wage growth. A Reuters article on Wednesday reporting the ECB now expects euro zone inflation to remain above 3% in 2024 appeared to increase market bets on a rate hike. The report came from a source ahead of the release of its projection Thursday.
“Some [Governing Council] members did not draw the same conclusion, and some governors would have preferred to pause and reserve future decisions once more certainty, more intelligence, would have resulted from the passing of time and the impact of our many previous decisions,” ECB President Christine Lagarde told CNBC’s Annette Weisbach in the press conference following the announcement.
“But I can tell you there was a solid majority of the governors to agree with the decision we have made.”
Lagarde said there was no concrete answer to whether rate hikes were finished since the Governing Council remains data-dependent — but she stressed the ECB’s current thinking was encapsulated in the statement around rates at current levels making a “substantial contribution” to the fight against inflation if held for long enough.
Germany is forecast to be the only major European economy to contract this year — though the wider picture is also downbeat, with euro zone business activity declining in August to its lowest level since November 2020.
Peter Schaffrik, chief European macro strategist at RBC Capital Markets, told CNBC that market focus would not so much be on the hike itself, but rather the language used by the central bank in its statement.
Schaffrik said one focus will be on the 2025 inflation forecast, which unlike forecasts for 2023 and 2024 was revised lower since this is typically what the ECB means when it talks about the medium term.
Another will be on its descriptor of rates being maintained for a “sufficiently long duration” — indicating the “path forward is flat for quite some time,” he said.
Christine Lagarde, president of the European Central Bank.
Bloomberg | Bloomberg | Getty Images
FRANKFURT — The European Central Bank is set to keep rates steady Thursday as economic activity in the euro area decelerates at a faster pace than previously expected.
Shoppers in the region are holding back on spending as inflation eats up their disposable income, while the manufacturing sector has been in decline since around mid-2022.
Economic theory would suggest that these two factors would drag inflation down. But whether this will prove to be the case is a still open debate inside the walls of the Frankfurt institution.
“While doves will argue that it is just a question of time before weaker growth feeds into lower inflation, the hawks lean on part of the weakness in growth stemming from supply rather than demand,” said Paul Hollingsworth, chief economist with BNP Paribas, in a recent research note.
“As a result, price pressures might be less sensitive to weaker growth than would typically be expected.”
Headline inflation for August was slightly higher than expected at 5.3%. But core inflation, which excludes energy and food and is closely watched by the ECB as a gauge of underlying price pressures, fell in line with expectations to 5.3% as well, down from 5.5% the month prior.
More information on what the ECB thinks about inflation and the growth trajectory will be revealed in a new round of staff projections on Thursday. The market expects revisions both to the ECB’s GDP and inflation outlook.
“Given the recent data, the staff are likely to revise down the near-term outlook for growth,” said Deutsche Bank’s ECB watcher Mark Wall in a research note.
“Tighter financial conditions and slower growth should translate into a lower level of core inflation by the end of the forecast horizon.”
The outlook is still very uncertain. That’s what President Christine Lagarde stressed at Jackson Hole last month, the Federal Reserve’s annual conference. The past few years have seen numerous shocks which have caused lasting effects on the economic system and the transmission of monetary policy.
“We have to form a view of the future and act in a forward-looking way,” Lagarde said in her speech at Jackson Hole. “But we will only ever truly understand the effects of our decisions after the fact,” she added.
Steve Forbes doesn’t expect the Federal Reserve to raise rates in upcoming meetings, but the Forbes Media chairman doesn’t see cuts in the near term either.
“I think the Federal Reserve is not going to increase interest rates in the next few months. I think they’re going to pause,” Forbes said, citing the slew of contradictory U.S. economic data.
“Some things are weakening, the labor market usually is a lagging indicator. But the services [sector] report was pretty good,” he told CNBC’s Chery Kang on the sidelines of the Forbes Global CEO Conference held in Singapore.
“So that mixed picture gives them [an] excuse finally to do nothing,” he said.
The Federal Open Market Committee’s next meeting is scheduled for Sept. 19 to 20. There’s a 92% chance the central bank will leave rates unchanged after its September meeting, according to the CME’s FedWatch tool. But those probabilities shift to a 38.4% chance of a hike after the November meeting.
When asked whether the U.S. faces a potential government shutdown, Forbes said he reckons one may be looming.
Funding for the federal government is set to run out at the end of the month unless Congress takes action. Failure to pass spending legislation would result in a shutdown on Sept. 30.
Forbes said that Washington will go “right to the deadline” before coming up with a deal.
“But the danger on these things, [when] we’re gonna keep getting close to the cliff is you might slip and go over the cliff. You might get a government shutdown,” he said.
Forbes also said he expects the 2024 elections to be about the “pocketbook,” with the state of the economy being “issue No. 1.”
Other issues will include crime and foreign policy, such as Washington’s standing on the global stage as well as its approach toward Ukraine.
Residential buildings stand at the Metro Town development, jointly developed by CK Asset Property Holdings Ltd., Nan Fung International Holding Ltd. and MTR Corp., in Hong Kong, China, on Thursday, Jan. 11, 2018.
Anthony Kwan | Bloomberg | Getty Images
Hong Kong-listed property stocks surged on Monday, leading gains on the Hang Seng Index and powering the benchmark to be the top gainer in Asia.
Over the weekend, Country Garden won approval from its creditors to extend payments for a 3.9 billion yuan ($540 million) onshore private bond, according to sources and a document seen by Reuters.
Bloomberg reported the company also wired a coupon payment on a 2.85 million Malaysian ringgit ($613,000) denominated bond.
Country Garden is still scheduled to pay $22 million in coupon payments on two U.S. dollar bonds it missed in early August. The grace period ends Wednesday.
Some of China’s largest banks also cut interest rates on yuan deposits, including the Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China.
Federal Reserve Chairman Jerome Powell testifies before the House Committee on Financial Services June 21, 2023 in Washington, DC. Powell testified on the Federal Reserve’s Semi-Annual Monetary Policy Report during the hearing.
Win Mcnamee | Getty Images News | Getty Images
Since he took over the chair’s position at the Federal Reserve in 2018, Jerome Powell has used his annual addresses at the Jackson Hole retreat to push policy agendas that have run from one end of the policy playing field to the other.
In this year’s iteration, many expect the central bank leader to change his stance so that he hits the ball pretty much down the middle.
With inflation decelerating and the economy still on solid ground, Powell may feel less of a need to guide the public and financial markets and instead go for more of a call-’em-as-we-see-’em posture toward monetary policy.
“I just think he’s going to play it about as down the middle as possible,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America. “That just gives him more optionality. He doesn’t want to get himself boxed into a corner one way or another.”
If Powell does take a noncommittal strategy, that will put the speech in the middle of, for instance, 2022’s surprisingly aggressive — and terse — remarks warning of higher rates and economic “pain” ahead, and 2020’s announcing of a new framework in which the Fed would hold off on rate hikes until it had achieved “full and inclusive” employment.
Despite the anticipation for a circumspect Powell, markets Thursday braced for an unpleasant surprise, with stocks selling off and Treasury yields climbing. Last year’s speech also featured downbeat anticipation and a sour reception, with the S&P 500 off 2% in the five trading days before the speech and down 5.5% in the five after, according to DataTrek Research.
A day’s wavering on Wall Street, though, is unlikely to sway Powell from delivering his intended message.
“I don’t know how hawkish he needs to be given the fact that the funds rate is clearly in restrictive territory by their definition, and the fact the market has finally bought into the Fed’s own forecast of rate cuts not happening until around the middle or second half of next year,” said LaVorgna, who was chief economist for the National Economic Council under former President Donald Trump.
“So it’s not as if the Fed has to push back against a market narrative that’s looking for imminent easing, which had been the case from essentially most of the past 12 months,” he added.
Indeed, the markets seem finally to have accepted the idea that the Fed has dug in its heels against inflation and won’t start backing off until it sees more convincing evidence that the recent spate of positive news on prices has legs.
Yet Powell will have a needle to thread — assuring the market that the Fed won’t repeat its past mistakes on inflation while not pressing the case too hard and tipping the economy into what looks now like an avoidable recession.
“He’s got to strike that chord that the Fed is going to finish the job. The fact is, it’s about their credibility. It’s about his legacy,” said Quincy Krosby, chief global strategist at LPL Financial. “He’s going to want to be a little more hawkish than neutral. But he’s not going to deliver what he delivered last year. The market has gotten the memo.”
Energy prices have risen through the summer, and some factors that helped bring down inflation figures, such as a statistical adjustment for health-care insurance costs, are fading. A Cleveland Fed inflation tracker anticipates August’s figures will show a noticeable jump. Bond yields have been surging lately, a response that at least partly could indicate an anticipated jump in inflation.
At the same time, consumers increasingly are feeling pain. Total credit card debt has surpassed $1 trillion for the first time, and the San Francisco Fed recently asserted that the excess savings consumers accumulated from government transfer payments will run out in a few months.
Even with worker wages rising in real terms, inflation is still a burden.
“When all is said and done, if we don’t quell inflation, how far are those wages going to go? With their credit cards, with food, with energy,” Krosby said. “That’s the dilemma for him. He has been put into a political trap.”
Powell presides over a Fed that is mostly leaning toward keeping rates elevated, though with cuts possible next year.
Philadelphia Fed President Patrick Harker is among those who think the Fed has done enough for now.
“What I heard loud and clear through my summer travels is, ‘Please, you’ve gone up very rapidly. We need to absorb that. We need to take some time to figure things out,'” Harker told CNBC’s Steve Liesman during an interview Thursday from Jackson Hole. “And you hear this from community banks loud and clear. But then we’re hearing it even from business leaders. Just let us absorb what you’ve already done before you do more.”
While the temptation for the Fed now might be to signal it has largely won the inflation war, many market participants think that would be unwise.
“You’d be nuts to you know, to put out the mission accomplished banner at this point, and he won’t, but I don’t see any need for him to surprise hawkish either,” said Krishna Guha, head of global policy and central bank strategy for Evercore ISI.
Some on Wall Street think Powell could address where he sees rates headed not over the next several months but in the longer run. Specifically, they are looking for guidance on the natural level of rates that are neither restrictive nor stimulative, the “r-star (r*)” value of which he spoke during his first Jackson Hole presentation in 2018.
However, the chances that Powell addresses r-star don’t seem strong.
“There was a sort of general concern that Powell might surprise hawkish. The anxiety was much more about what he might say around r-star and embracing, high new normal rates than it was about how he would characterize the near-term playbook,” Guha said. “There’s just no obvious upside for him in embracing the idea of a higher r-star at this point. I think he wants to avoid making a strong call on that.”
In fact, Powell is mostly expected to avoid making any major calls on anything.
At a time when the chair should “take a victory lap” at Jackson Hole, he instead is likely to be more somber in his assessment, said Michael Arone, chief investment strategist at State Street’s US SPDR Business.
“The Fed likely isn’t convinced inflation has been beaten,” Arone said in a note. “As a result, there won’t be any curtain calls at Jackson Hole. Instead, investors should expect more tough talk from Chairman Powell that the Fed is more committed than ever to defeating inflation.”
Eli Remolona, governor of the Bangko Sentral ng Pilipinas, says he expects there will be "some recovery" in the country's economy in the third quarter.
Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated.
That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle.
However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years.
While some members have said since the meeting that they think the further rate hikes could be unnecessary, the minutes suggested caution. Officials noted pressure from a number of variables and stressed that future decisions will be based on incoming data.
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the document said.
Indeed, the minutes suggested considerable misgivings over the future direction of policy.
While there was agreement that inflation is “unacceptably high,” there also was indication “that a number of tentative signs that inflation pressures could be abating.”
“Almost all” the meeting participants, which includes nonvoting members, were in favor of the rate increase. However, those opposed said they thought the committee could skip a hike and watch how previous increases are impacting economic conditions.
“Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening,” the minutes said.
The minutes noted that the economy was expected to slow and unemployment likely will rise somewhat. However, staff economists retracted an earlier forecast that troubles in the banking industry could lead to a mild recession this year.
But there was concern over problems with commercial real estate.
Specifically, officials cited “risks associated with a potential sharp decline in CRE valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions” such as money market funds and the like.
For the future of policy, members emphasized two-sided risks of loosening policy too quickly and risking higher inflation against tightening too much and sending the economy into contraction.
Recent data shows that while inflation is still a good distance from the central bank’s 2% target, it has made marked progress since peaking above 9% in June 2022.
For instance, the consumer price index, a widely followed measure of goods and services costs, ran at a 3.2% 12-month rate in July. The Fed’s favorite measure, the personal consumption expenditures price index excluding food and energy, stood at 4.1% in June.
However, policymakers worry that declaring victory too soon could repeat critical mistake of the past. In the 1970s, central bankers raised rates to combat double-digit inflation, but backed off quickly when prices showed tentative signs of backing off.
Despite the intent of the hikes to slow down the economy, they’ve had seemingly little effect on overall growth.
GDP gains have averaged above 2% in the first half of 2023, with the economy on pace to rise another 5.8% in the third quarter, according to updated projections from the Atlanta Fed.
At the same time, employment growth as slowed some but still remains robust. The unemployment rate was at 3.5% in July, hovering around its lowest level since the late 1960s. Job openings have come in some from record levels but still far outnumber the pool of available workers.
Some Fed officials of late have indicated that while rate cuts are unlikely this year, increases could be over. Regional presidents John Williams of New York and Patrick Harker of Philadelphia, for instance, both said last week they could see a pathway to holding the line here. Market pricing is strongly pointing to no additional hikes, with less than a 40% chance of another increase price in before the end of the year, according to CME Group data.
The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.
Arnd Wiegmann | Getty Images News | Getty Images
UBS on Friday said that it has ended a 9 billion Swiss franc ($10.27 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place by the Swiss government when it took over rival Credit Suisse in March.
UBS said the decision followed a “comprehensive assessment” of Credit Suisse’s non-core assets that were covered by the liquidity support measures.
“These measures, together with the intervention of UBS, contributed to the stabilization of Credit Suisse and financial stability in Switzerland and globally,” UBS said in a statement.
“These measures, which were created under emergency law to preserve financial stability, will thus cease to exist, and the Confederation and taxpayers will no longer bear any risks arising from these guarantees,” the Swiss government said in a statement Friday.
“Furthermore, the Confederation earned receipts of around CHF 200 million on the guarantees.”
The Swiss Federal Council plans to submit a bill in parliament to introduce a public liquidity backstop (PLB) under ordinary law, while work continues on a “comprehensive review of the too-big-to-fail regulatory framework.”
The 9 billion Swiss franc LPA was intended to insure UBS on losses above 5 billion Swiss francs following the takeover, which was brokered over a frenetic weekend in March amid talks with the Swiss government, the SNB and the Swiss Financial Market Supervisory Authority.
The emergency rescue deal saw UBS acquire Credit Suisse for a discount price of 3 billion Swiss francs, creating a Swiss banking and wealth management behemoth with a $1.6 trillion balance sheet.
“After reviewing all assets covered by the LPA since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required,” UBS said.
“Therefore, UBS has given notice of voluntary termination effective 11 August 2023. UBS pays a total of CHF 40 million to compensate the Swiss Confederation for the establishment of the LPA.”
The 100 billion Swiss franc public liability backstop was established on March 19 by the Swiss government and allowed the SNB to provide liquidity support to Credit Suisse if needed, underwritten by a federal default guarantee.
UBS confirmed on Friday that all loans drawn under the PLB were fully repaid by Credit Suisse by the end of May, and that the group had terminated the PLB agreement after a review of its funding situation.
“Through 31 July 2023, Credit Suisse expensed a commitment fee and a risk premium totaling CHF 214 million, including approximately CHF 61 million to the SNB and CHF 153 million to the Swiss Confederation,” UBS added.
The European Central Bank has likely pressed pause on its rate hiking cycle, the chief financial officer of Commerzbank told CNBC on Friday.
The ECB raised interest rates in July, completing a full year of rate increases. ECB President Christine Lagarde flagged that the central bank could continue or pause rate hikes at its next meeting in September, but definitely will not cut. The ECB’s main rate currently stands at 3.75%.
Commerzbank CFO Bettina Orlopp told CNBC that the ECB is unlikely to raise rates in September — going against the grain of several analysts who expect a final rate hike next month.
“It is not our assumption we will see [a] rate cut, we do not assume there will be rate increases [too],” Orlopp said when asked about the outlook for 2024. “We will stick to the 3.75% that we currently have.”
Commerzbank is the second largest lender in Germany by market capitalization, and its performance is closely linked to the interest rate environment.
Second-quarter results out Friday showed a 20% jump in the bank’s net profit, compared with the previous year. Revenue also came in higher than analysts had anticipated, reaching 2.6 billion euros ($2.84 billion). The solid results led the German lender to increase its expectations for net interest income in 2023 to “at least 7.8 billion euros,” from a previous guidance of 7 billion euros.
Orlopp added that: “If there were to be another interest rate hike like in the fall, that would be again an upside potential for us.”
A lot of uncertainty remains about which direction the ECB will take in September, with the central bank arguing its decision will depend on data.
“We are very close to the peak in rates and I think the peak is going to come in the next couple of months,” Akshay Singal, EMEA head of short-term interest rate trading at Citi, told CNBC’s Street Signs on Friday.
“[The] September meeting will be the last hike for all of them, if they do [increase rates],” he added, referencing the ECB, Bank of England and Federal Reserve.
