The next global financial crisis is not ahead of us: UBS US chief economist

The next global financial crisis is not ahead of us: UBS US chief economist

The chief economist at the American bank UBS says:
Despite indicators such as US credit card debt pointing to financial and economic stress, another global financial collapse is not imminent, believes Jonathan Pingel, chief US economist at UBS.

Data from the Federal Reserve Bank of New York showed earlier this month that US credit card debt rose to $1.08 trillion in the third quarter of 2023. This has raised concerns about what rising debt levels, caused at least in part by rising debt levels, could mean. Prices, for the economy as a whole.

However, Pingle told CNBC’s Jumana Persici on Wednesday that it is difficult to view the data as a systemic risk.

“I don’t think we are facing the next global financial crisis,” he said on the sidelines of the UBS European conference.

Pingel suggested that credit tightening plays a role when it comes to the Federal Reserve’s monetary policy lag seeping into the economy. “We are still waiting to see what credit headwinds will dampen activity in 2024,” he said.

He explained that credit tightening tends to precede loan growth by several quarters, so the full impact is not yet clear.

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Many other factors also play a role, Pingel noted. This includes concerns about regulation in the wake of the collapse of Silicon Valley Bank, which raised alarms about the health and stability of the banking sector and led to a crisis in regional banking, and a “rapid” rise in interest rates, he added.

The Federal Reserve began raising interest rates in March 2022 in an attempt to ease inflation and cool the economy. Eleven rate hikes have been implemented since then, with the target range for the federal funds rate rising from 0% to 0.25% to 5.25% to 5.5%.

The Federal Reserve chose to leave interest rates unchanged at each of its last two meetings, and a lower-than-expected October CPI reading on Tuesday prompted traders to erase chances of a rate hike at the central bank’s December meeting.

The CPI was flat compared to September and reflected a rise of 3.2% year-on-year, while the so-called core CPI, which excludes food and energy prices, reached 4% year-on-year. This represents the lowest increase since September 2021.

“It’s great news for the Fed as it seeks to restore price stability,” Pingel told CNBC on Wednesday. However, they are “not out of the woods yet,” he added, noting that “there is still a way to go” before the Fed reaches its 2% inflation target.

Pingel said there is a trend toward lower inflation, and if the Fed can slow the economy, it can make strong progress toward its inflation target.

“We think it’s likely to get to 2 next year. It’s actually falling faster than the Fed expects,” he said.

However, the economy, including the labor market, will have to weaken further for inflation to remain steady at around 2%, Pingel predicts.

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“We think the path to two and a half years is very clear, but we think getting to the final stage will require some weakness in the labor market,” he said.

In its forecast for the US economy for 2024-2026, published on Monday, UBS said it expects unemployment to rise to nearly 5% next year and for the economy to enter a moderate recession. The UBS report indicated that it expects the economy to contract by about half a percentage point in mid-2024.

A looming recession has been the main fear among investors throughout the Fed’s rate hike cycle, as many were concerned about raising rates too much, too quickly.

So they were hoping for an imminent end to interest rate hikes and hints about when the Fed might start cutting rates again.

UBS expects significant interest rate cuts for 2024, anticipating the possibility of interest rate cuts of up to 275 basis points over the course of the year.

The Swiss bank said interest rates would be cut “first to prevent the nominal funds rate from becoming increasingly restrictive as inflation declines, and later in the year to stem economic weakness.”

Pingel explained that lowering interest rates would be a two-step process, and could begin relatively early in the year.

“As early as March they probably should start at least calibrating the nominal funds rate,” he said, while the second phase would likely begin when unemployment starts to rise.

    (Tags for translation) Breaking news: Investment 

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