UBS’ chairman is sticking to his call for higher U.S. interest rates this year despite being wrong on his prediction for a move at last week’s highly anticipated meeting.
Last week, Axel Weber told CNBC he expected the Federal Reserve to commence its tightening of monetary policy at the conclusion of its two-day review on Thursday. But instead, the central bank held its powder dry in what analysts dubbed the most important monetary policy decision in decades.
“What I said was the Fed would move sometime this year, most likely in September, because I thought the U.S. economy was strong enough to withstand a rate hike,” the former president of Germany’s central bank told CNBC at the sidelines of the fourth annual Singapore Summit this weekend.
He’s now expecting action at December’s meeting, justifying his call by referring to the fact that the Fed’s dot plot signaled higher rates will arrive this year. But once rates are actually lifted, Weber doesn’t anticipate an immediate tightening cycle to follow. Rather, he believes the Fed will only move at every second meeting.
“The Fed is more in a mode where, rather than gearing monetary policy to the most likely development of the economy, they’re in a risk management mode still,” he said, adding that markets have reacted adversely to the cautious tone since it indicates the U.S. economy isn’t as strong as expected.
Indeed, Thursday’s decision to leave rates unchanged surprised several experts, including Weber, who pointed to healthy consumer spending, housing and employment reports as factors supporting a rate hike.
“The underlying economic data in the U.S. warrants a rate hike,” Weber told CNBC last Wednesday. His sentiments were also echoed in CNBC’s latest Fed Survey that showed 49 percent of respondents expected the central bank to raise rates on Thursday.
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