Next global financial crisis is not ahead: UBS U.S. chief economist

Regardless of indicators like U.S. bank card debt pointing towards monetary and financial pressures, one other international monetary crash will not be imminent, UBS chief U.S. economist Jonathan Pingle believes.

U.S. bank card debt soared to $1.08 trillion within the third quarter of 2023, information from the Federal Reserve Financial institution of New York confirmed earlier this month. This has sparked considerations about what rising debt ranges, introduced on at the least in elements by larger costs, might imply for the general economic system.

Nevertheless, Pingle instructed CNBC’s Joumanna Bercetche on Wednesday that it’s troublesome to view the information as a systemic threat.

“I do not suppose we’re going through the following GFC [global financial crisis],” he mentioned on the sidelines of the usEuropean Convention.

Credit score tightening does play a task in relation to the lag of Federal Reserve financial coverage filtering by means of to the economic system, Pingle urged. “We’re nonetheless ready to see these credit score headwinds dampen exercise in 2024,” he mentioned.

Credit score tightening tends to precede mortgage development by a number of quarters, so the total impression will not be but clear, he defined.

A number of different components additionally come into play, Pingle famous. This consists of considerations about regulation within the wake of the collapse of Silicon Valley Financial institution, which raised alarms in regards to the well being and stability of the banking sector and prompted a disaster in regional banking, and “speedy” rate of interest hikes, he mentioned.

The Federal Reserve started climbing rates of interest in March 2022 in an effort to ease inflation and funky the economic system. Eleven price hikes have been carried out since then, with the goal vary for the fed funds price rising from 0%-0.25% to five.25%-5.5%.

The Fed selected to go away charges unchanged at each of its final two conferences, and Tuesday’s lower-than-expected studying of the October client worth index prompted merchants to all however erase the possibilities of charges being hiked on the central financial institution’s December assembly.

The CPI was flat in comparison with September and mirrored a 3.2% rise on an annual foundation, whereas the so-called core-CPI, which excludes meals and vitality costs, got here in at 4% yr over yr. This marked the smallest rise since September 2021.

“It is nice information for the Federal Reserve of their quest to revive worth stability,” Pingle instructed CNBC on Wednesday. Nonetheless, they’re “not out of the woods but” he added, saying that there was “nonetheless a methods to go” earlier than the Fed reached its 2% inflation aim.

A development of disinflation is nevertheless in place, Pingle mentioned, and if the Fed can sluggish the economic system, it might make robust progress towards its inflation aim.

“We predict its most likely going to get to 2 subsequent yr. It is already falling sooner than the Fed expects,” he mentioned.

Nevertheless the economic system together with the labor market must weaken additional for inflation to steadily stay round 2%, Pingle expects.

“The trail to 2 and a half we predict is fairly clear, however kind of that final leg down we do suppose goes to take some weakening within the labor market,” he mentioned.

In its 2024-2026 outlook for the U.S. economic system, which was revealed Monday, UBS mentioned it anticipated unemployment to rise shut to five% subsequent yr and for the economic system to enter a light recession. UBS is anticipating a contraction of the economic system by round half a proportion level in mid-2024, its report urged.

A looming recession has been a key worry amongst buyers all through the Fed’s rate-hiking cycle as many have been involved about charges being hiked too excessive, too rapidly.

They’ve due to this fact been hoping for an imminent finish to price hikes and hints about when the Fed might begin chopping charges once more.

UBS foresees vital price cuts for 2024, predicting that charges might be reduce by as many as 275 foundation factors all year long.

Charges can be reduce “first to stop the nominal funds price from turning into more and more restrictive as inflation falls, and later within the yr to stem the financial weakening,” the Swiss financial institution mentioned.

Charge cuts will due to this fact be a two-step course of Pingle defined, and will begin comparatively early within the yr.

“As early as March they need to most likely begin at the least calibrating the nominal funds price,” he mentioned, whereas the second stage would possible start when unemployment begins rising.