Markets "overestimate" Fed rate cuts

According to a pair of leading bankers at UBS and Goldman Sachs, investors are ahead of their expectations.

The hope of reducing borrowing costs has been fueled by recent comments from Federal Reserve Chairman Jerome Powell and other senior officials of the US central bank, which sparked a surge in US stock markets.

But Axel Weber, chairman of the Swiss bank UBS, said Thursday that traders could misinterpret the tone of these remarks.

"I think the market has overestimated the amount of rate cuts that the Fed is likely to make," Weber said at a round table at a meeting of the International Finance Institute. in Tokyo.

"If you listen to some of the key decision makers such as Charlie Evans, if you listen to Jay Powell, there will be no imminent rate reduction," Weber said. "It is likely that, during the second half of the year, the data could be subject to corrective action if the data presents additional weakness."

John Waldron, President and Chief Operating Officer of Goldman Sachs, expressed the same concerns as Nancy Hungerford of CNBC.

"The market takes into account a fairly large set of Fed actions," said Waldron, who was also attending the meeting. "I'm a little concerned that the market is overly optimistic about the size and speed of the Fed's movements."

Weber also said that he did not see the Fed taking precautionary rate cuts "at this point".

Weber, who is also president of the IIF, said it was clear that the Fed would be ready to react if it deemed it necessary.

"The fact that the United States has room for maneuver, I think it would be unwise to badume that they will not use it if the economy weakens significantly." However, I think current market prices are exaggerated. "

Waldron, appearing on the same panel as Weber, added that "the market is certainly forecasting cuts of more than a hundred basis points now," citing options markets.

But he projected that the Fed "would rely more on data than on short-term sentiment."

Weber also suggested that there was room for optimism if trade conflicts do not get worse.

"If these tariffs do not increase, there is plenty of room for a complete overhaul of prices in the markets and some benefits related to that," he said.

-Yen Nee Lee of the CNBC contributed to this report.