UBS CEO Sergio Ermotti stated Wednesday that while he anticipates increased market volatility in the latter half of the year, he does not foresee an imminent recession in the U.S. Despite recent sharp sell-offs in global equities triggered by weaker-than-expected U.S. economic data, Ermotti remains optimistic about the U.S. economy’s resilience.

The recent turbulence in global markets was fueled by concerns over a potential economic downturn in the U.S. and whether the Federal Reserve might need to adjust its monetary policy stance. The Fed held interest rates steady at a 23-year high in late July, intensifying speculation about future rate cuts.

Addressing the U.S. economic outlook, Ermotti commented, “Not necessarily a recession, but definitely a slowdown is possible.” He emphasized that current macroeconomic indicators do not clearly point to a recession and noted that the Federal Reserve has the capacity to intervene, though it will take time for any measures to impact the economy.

UBS anticipates that the Federal Reserve will reduce rates by at least 50 basis points by year-end. Market expectations are divided between a 50 and a 25 basis point cut at the Fed’s upcoming September meeting, according to LSEG data.

Ermotti also highlighted potential factors contributing to increased market volatility, including the upcoming U.S. presidential election and broader geopolitical and macroeconomic uncertainties. “That’s one factor, but also, if I look at the overall geopolitical picture, if I look at the macroeconomic picture, what we saw in the last couple of weeks in terms of volatility, which, in my point of view, is a clear sign of the fragility of some elements of the system, … one should expect definitely a higher degree of volatility,” he said.

Monetary policy remains a key uncertainty, particularly regarding whether central banks will need to implement more aggressive rate cuts to address economic slowdowns. In Switzerland, UBS’s home country, the central bank has cut rates twice this year, while the European Central Bank and the Bank of England have each announced one cut.

Bruno Verstraete, founder of Lakefield Wealth Management, remarked, “Knowing the events which are the unknowns on the horizon like the U.S. presidential election, we became complacent with a very low volatility, now we are shifting to a more normal regime.” He added that for UBS, increased volatility could be beneficial, as it may lead to higher trading income.

(Adapted from CNBC.com)

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