UBS Group AG Chief Executive Sergio Ermotti said Thursday the fight against inflation is not over and some investors appear to be over-pricing the Federal Reserve for a potential aggressive interest rate cut this month.

“I think the market seems to be expecting a little too much from the Fed to act so aggressively,” the UBS Group AG chief executive said in an interview.

The question of whether the Federal Reserve will cut interest rates at the end of its next policy meeting on Sept. 18 has largely been answered. The only question that remains is: by how much.

Ermotti added that the "most important" issue for the Fed to consider remains inflation, which remains thorny and not yet "fully under control."

Data released on Wednesday showed that the U.S. core CPI, which excludes volatile food and energy prices, rose 0.3% month-on-month in August, slightly higher than the expected 0.2%.

While the headline CPI, which measures the cost of goods and services in the U.S. economy, increased 0.2% month-on-month in August, the increase in the core CPI could reduce the likelihood of a big interest rate cut by the Federal Reserve when policymakers meet next week.

“I think there will probably be a rate cut, but not as much as the market is expecting,” Ermotti said.

Traders are pricing in about an 85% chance of a 25 basis point rate cut in September, but 15% still expect a 50 basis point cut, according to the CME Group’s FedWatch tool.

The Fed’s benchmark borrowing rate, which currently ranges from 5.25% to 5.50%, influences most other interest rates consumers pay.

Ermotti said the long-awaited soft landing was still possible, adding that other economic data still seemed to point to that being the case.

“Some of the inflation is very sticky, but the consumer is doing pretty well,” he said. “But I would say that for now the outlook is pretty consistent with a soft landing, so we remain optimistic about the situation.”

Ermotti also shared his optimism about Asia, saying UBS sees growth momentum in the region as "very good." "We have been investing in China for more than 50 years, and we will be there for another 100, 200 years," he said, though the region is not immune to challenges posed by geopolitics and the broader global economic outlook.

“Overall, our two real opportunities and growth engines continue to be the U.S. and Asia, with China being the main driver there,” Ermotti said.

The article is forwarded from: Jinshi Data