Interest rates won’t fall as fast as expected if tariffs stoke inflation, says UBS CEO

The expected drop in interest rates could stall if potential tariffs from Donald Trump’s second White House administration weigh on markets and prop up inflation, UBS Chief Executive Sergio Ermotti warned on Tuesday.

“Something I’ve been saying for a while, inflation is a lot harder than we’ve been saying,” Sorkin told CNBC’s Andrew Ross at the World Economic Forum in Davos, Switzerland. “The (truth) of the matter is that we need to also look at how tariffs will play a role in inflation.”

“Tariffs probably won’t really help lower inflation. And so I don’t see rates coming down as fast as people think,” he said.

The markets have been on alert for the next commercial steps of the recently inaugurated Trump, who has threatened to impose 25% tariffs on Mexico and Canadawhile also raising a separate set of retaliatory trade measures against China in a bid to pressure Beijing into forcing ByteDance’s sale of TikTok.

Europe, its historic ally, is also watching for potential US protectionism in trade as Trump advances his “America First” agenda.

Inflation has been cooling in most major global economies, after a period of heated price growth fueled by the Covid-19 pandemic and an energy crisis fueled by the war in Ukraine. Europe, the United Kingdom and the United States finally began their respective cutting cycles last year.

In Trump’s home territory, US inflation bordered higher in December, increasing to 2.9% year-on-year from 2.7% in November. The latest minutes of the US Federal Reserve’s December meeting noted a prospect of only two interest rate cuts in 2025down from an earlier estimate of four such cuts during the September meeting, assuming quarter-point adjustments.

A high interest rate environment often benefits the commercial banking sector, whose U.S. lenders could also benefit from a competitive advantage over their European counterparts if Trump delivers on his promise of a lighter touch on regulation.

“I don’t think we’re going to see much deregulation,” Ermotti said Tuesday. “We probably won’t see more regulations, we won’t see new overlapping regulations that conflict with existing regulation.”

He added that he did not believe banks should be “massively deregulated” but said it was “very important that we do not receive unnecessary new regulations.”

“If we look only at the numbers and compare UBS with the Swiss economy, we see that it is too big,” said former Swiss Finance Minister Ueli Maurer on January 10. in an interview with the Swiss newspaper Tages-Anzeigeraccording to a Google translation. “Therefore, the risk must be reduced. This depends mainly on the shareholders, who elect the organizations and are responsible with their capital. In the end, they are the ones who must bear the responsibility, not the taxpayers. We must also examine legislative measures”.

Exceeding 1.7 trillion dollars in 2023UBS’s balance sheet is roughly double that of Switzerland expected economic output for last year, meaning its possible failure at any time would deprive the lender of local rivals to take it over, pose risks of disruption to the Swiss economy and leave the government in Bern with a hefty bill in the event of nationalization.

Ermotti previously defended that his bank is not “too big to fail“—while last April the government recommended that UBS and three other systematically relevant lenders should meet stricter capital requirements to safeguard the national economy.

Since then, the bank published an overwhelming rhythm in the third quarter, with net profit attributable to shareholders of $1.43 billion, compared to an average forecast of $667.5 million in a survey of LSEG analysts. The lender’s revenue during the period reached $12.33 billion, also above analyst expectations of close to $11.78 billion. The group will publish fourth-quarter results on February 4.