UBS CEO Sergio Ermotti expects the ECB, Fed and Bank of Japan to raise rates in the coming months, saying inflation has not eased and borrowing costs will stay high for the foreseeable future. He warned that investors have grown complacent about geopolitical and economic risks, even as UBS clients diversify across sectors and regions without cutting U.S. or dollar exposure.
Sergio Ermotti expects the European Central Bank, the Federal Reserve and the Bank of Japan to raise borrowing costs in the coming months, a call that runs against a market still pricing a September Fed hold and bets on cheaper money into 2027.
"Inflationary pressures are still there and they are not abating, so I think it's reasonable to expect interest rates to remain at higher levels for the foreseeable future," the UBS Group chief executive said in an interview with CNBC's Christine Tan. "The ECB could begin a hiking process. The Fed will follow. We do expect several rate hikes over the coming months."
The backdrop supports his reading. Brent crude has climbed back above $100 a barrel as Middle East tensions revive energy risk, and the U.S. 10-year Treasury yield has risen to about 4.84%, close to its highest since 2023. Eurozone core inflation sits near 2.4%, above the ECB's 2% target, while Japan's 10-year government bond yield has broken above 3%, a level rarely seen in decades.
UBS this week moved its own Fed path for 2026 to two quarter-point increases, in September and December, after August nonfarm payrolls came in at 162,000 and inflation risks built. That forecast is not yet consensus. Most economists surveyed expect the Fed to hold the federal funds rate at 3.50% to 3.75% at its Sept. 15-16 meeting, though a growing share now see at least one more hike this year and futures have priced two by March.
Europe looks closer to moving. Markets have almost fully priced a 25-basis-point ECB increase to 2.50%, leaving the question of whether the central bank signals more to come. The Bank of Japan faces its own pressure after the yen rose to a seven-month high, lifting expectations for further tightening.
Ermotti's sharper point is about positioning rather than policy. He said volatility of the past few years has not made investors more careful — it has made some of them more tolerant of risk. "There has been a certain level of complacency in financial markets over the last few years," he said, adding that markets should have swung far more given the geopolitical and economic backdrop. "New problems or new issues keep emerging, while none of the old problems have been resolved or closed out."
That warning lands against a market that has been rewarded for ignoring it. Heavy spending on artificial intelligence and data centers has carried both economic growth and equity performance, and UBS clients have kept buying AI and technology assets. The risk is that the same capital expenditure that supports earnings also raises corporate financing needs, making valuations more sensitive to the cost of capital just as risk-free rates push higher.
The transmission is straightforward. If energy prices stay elevated and feed through transport, manufacturing and consumption, central banks lose room to cut and may extend tightening — the scenario UBS now models. Higher discount rates would then compress the multiples on the growth stocks that have led the market, while bondholders absorb price losses on top of the yield move already in the 10-year.
What wealthy investors are actually doing looks less dramatic than the rate debate. Ermotti said UBS clients have broadened allocations across sectors and regions over recent quarters while keeping exposure to AI and technology, and that overall asset allocation has not materially changed over the past year. There has been no wholesale exit from U.S. assets.
"In this environment, it's very difficult—and not really wise—to hold too many strong convictions," he said. Capital that flowed into global emerging markets about a year ago, he added, reflected deployment of idle cash rather than an active reduction of U.S. or dollar positions. "It was more about how idle cash was being allocated, rather than people withdrawing from the U.S. or the dollar, so I think that narrative has faded." The dollar, he said, remains the reference currency.
The next test arrives with U.S. producer and consumer price data, which will show whether costlier energy is feeding back into headline inflation and shaping the Fed's September decision. For portfolios, the practical implication of Ermotti's view is not an exit from risk assets but a wider spread of it: with oil above $100, global yields rising and three major central banks potentially tightening in the same window, concentration in any single market direction carries more downside than it did a year ago.
This article is for informational purposes only and does not constitute investment advice.
