UBS CEO Sergio Ermotti Warns of Market Complacency, Says Fed and ECB Likely to Hike Rates in Coming Months

UBS CEO Sergio Ermotti told CNBC's Christine Tan on Thursday that financial markets have grown complacent even as geopolitical and economic risks keep stacking up.

"There has been a level of complacency in financial markets in the last few years," Ermotti said, adding that given the current environment, he'd have expected considerably higher volatility than what markets have actually delivered. While markets have experienced occasional bouts of turbulence, strong investment in artificial intelligence, data centers and other new technologies has helped support economic growth and financial markets, he said.

Ermotti's list of unresolved problems reads like a rundown of this week's other headlines. Iran and Ukraine war-driven energy and shipping risks. US-China rivalry straining supply chains. Rising borrowing costs. Inflation that refuses to fall back to target. "New problems or new issues are emerging without any of the old ones being addressed or being closed," he said.

That mix is exactly why big convictions are dangerous right now, Ermotti argued. "It's quite difficult in this environment and not really advisable to have too many strong convictions," he told CNBC.

Diversifying, not fleeing

Ermotti said UBS's wealthy clients have spread their money across more sectors and regions in recent quarters, while still pouring money into AI and technology. But he was clear this isn't a stampede out of US assets or the dollar. Overall client asset allocation, he said, "hasn't changed materially" over the past year.

He pointed to money that moved into emerging markets about a year ago and said that was mostly investors putting idle cash to work, not investors actively cutting existing US or dollar positions. "It was more how excess cash was deployed rather than people back trading from the US or from the dollar, so I think that narrative has abated," Ermotti said. The dollar, in his view, remains "a reference currency."

The rate-hike call

The most concrete, and most contestable, part of Ermotti's remarks was his forecast on interest rates. Higher interest rates are also encouraging investors to take a more balanced approach to their portfolios, Ermotti said, as persistent inflation keeps pressure on central banks. Inflation has remained sticky and above central-bank targets over the past year, making further policy tightening unsurprising, in his view.

He said he expects the European Central Bank, the Federal Reserve and the Bank of Japan to raise rates in the coming months. "The ECB may start hike process. The Fed will follow. We do expect a couple of hikes in the next few months," he said. That means investors shouldn't expect borrowing costs to quickly return to the lower levels that prevailed before the latest inflationary pressures. "Inflationary pressure is still there, and it's not abating, and therefore, I think it's reasonable to expect higher rates for the foreseeable future," Ermotti said.

This is Ermotti's own read of where policy is headed, delivered in a television interview. None of the three central banks he named, the Fed, the ECB or the Bank of Japan, has announced or confirmed plans to raise rates in the near term. Central bank policy is set by committee votes on specific dates, not by bank CEOs predicting them in advance. Investors weighing his forecast should treat it as one well-placed banker's opinion, not a locked-in outcome.

Ermotti's complacency warning and his rate call are two separate claims. The first, that markets have been too calm given the risks on the table, is his own assessment of the environment. The second, that three major central banks are about to start hiking, is a prediction with no confirmed timeline. Whether the Fed's next move is a hike, a cut, or a hold will depend on inflation data and jobs numbers over the coming months, not on what any single bank CEO tells CNBC.