Schlegel: SNB has high bar to next interest-rate cut

Schlegel: SNB has high bar to next interest-rate cut

Swiss inflation remained unchanged in August, according to data released by the Federal Statistics Office on Thursday, raising market expectations that the Swiss National Bank (SNB) will freeze its interest rates at zero later this month. Consumer prices rose by 0.2% year-over-year in August, matching the July increase and keeping inflation within the SNB's target range of 0-2% for the third consecutive month [1].

The SNB has been under pressure to cut rates following its June decision to lower its interest rate to zero to combat deflationary pressures. However, the latest inflation data eases this pressure, as inflation has remained stable and within the target range. As a result, markets now predict a 91% chance that the SNB will leave its 0% policy rate unchanged at its September 25 meeting [1].

Thomas Gitzel, chief economist at VP Bank, commented that the August inflation data provides no reason for the SNB to take action. He noted that while inflation is above zero, the underlying deflationary trends have not intensified further. Additionally, the price-dampening effect of imported goods is gradually easing and is likely to disappear completely next year if the Swiss franc does not appreciate further [1].

Economic uncertainty, particularly due to U.S. tariffs on Swiss imports, has led the SNB to prefer keeping its options open. GianLuigi Mandruzzato at EFG Bank expects the SNB to maintain its current policy for several more quarters, as early indicators suggest moderate growth in the Swiss economy [1].

In contrast, the Federal Reserve is facing different dynamics. Williams, the President of the New York Federal Reserve, stated that the White House's increase in import tariffs has not significantly impacted the overall inflation trend, clearing a potential obstacle for the Federal Reserve to lower interest rates at the September meeting [2]. Derivatives market traders currently expect a 25 basis point rate cut at this month's meeting, although there is an increase in internal dissent among Federal Reserve governors [2].

St. Louis Fed President Alberto Musalem has also expressed reservations about a possible interest-rate cut at the Fed's September meeting. He argued that the current labor market remains solid, and there is considerable uncertainty about inflation, particularly given pressures from tariffs. Musalem warned that acting too aggressively to protect the labor market could cause more harm than good, contributing to more persistent above-target inflation [3].

In conclusion, while the Federal Reserve faces growing pressure to cut rates, the Swiss National Bank appears to have a high bar to make a similar move, given the stable inflation data and economic conditions in Switzerland.

References:
[1] https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3UR06V:0-swiss-inflation-fuels-expectations-of-central-bank-interest-rate-freeze/
[2] https://news.futunn.com/en/post/61697005/expectations-for-interest-rate-cuts-rise-in-september-new-york
[3] https://www.marketscreener.com/news/st-louis-fed-s-musalem-backs-fed-s-current-interest-rate-stance-ce7d59dbd980f72d