Evelyn Reynolds

The Swiss National Bank on Thursday took a third step to loosen monetary policy this year, bringing its key interest rate down by 25 basis points to 1.0%.
The reduction comes amid subdued domestic inflation and a rally in the Swiss franc.
It was the first major Western central bank to reduce interest rates back in March.

A view of the headquarters of the Swiss National Bank (SNB), before a press conference in Zurich, Switzerland, March 21, 2024. 
Denis Balibouse | Reuters

The Swiss National Bank on Thursday took a third step to loosen monetary policy this year, bringing its key interest rate down by 25 basis points to 1.0%.
The trim, which had been anticipated by 30 of 32 analysts surveyed in a Reuters poll, marked the SNB’s third interest rate reduction of 2024.

It was the first major Western central bank to reduce interest rates back in March.
The third trim comes amid similar signals from the European Central Bank and the U.S. Federal Reserve, which took the long-awaited plunge to slim down its interest rates with a 50-basis-point cut last week. Domestically, Swiss inflation remains subdued, with the latest headline print pointing to a 1.1% annual increase in August.
The Swiss franc gained ground against major currencies on the back of the latest interest rate decision. The U.S. dollar and euro were down nearly 0.14% and 0.16% against the Swiss coin, respectively — meeting ING analysts’ expectations that the cut would lead to “outperformance” of the Swiss currency.
The strengthening of the Swiss currency in August prompted one of the country’s largest associations, the technology manufacturers’ group Swissmem to entreat the SNB to “act soon, in line with its mandate” and ease pressures constraining local businesses.
“This renewed exacerbation has come at a sensitive time for one of the key export industries: following a tough period of over a year, a slow recovery was in sight. If the upside pressure cannot be contained, these hopes will dissipate,” Swissmem said at the time.

The SNB acknowledged the broader trend of its currency rally as a key contributor to the Thursday reduction.
“Inflationary pressure in Switzerland has again decreased significantly compared to the previous quarter. Among other things, this decrease reflects the appreciation of the Swiss franc over the last three months,” it said in a statement.
“The SNB’s easing of monetary policy today takes the reduction in inflationary pressure into account. Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term,” it added.
“The SNB has consistently been behind the curve on its inflation forecasts this year, even as it has conditioned them on lower rates each time. The 0.6% forecast for 2025 is likely a bit too close for comfort for a central bank keen to return to deflation,” said Kyle Chapman, FX markets analyst at Ballinger Group.
“I expect another two 25bp moves in December and March at the very least, primarily because I don’t see any near-term sources of depreciation for the franc without a stronger stance on intervention from the SNB. We are heading back towards zero relatively quickly,” Chapman added. 
SNB Chairman Thomas Jordan, who is leaving the central bank at the end of this month, talked down this risk on Thursday.
“If you look at our inflation forecast, this is still within the range of price stability, so I cannot see any risk of deflation soon,” Jordan told reporters, according to Reuters. He added that the central bank may nevertheless have to reduce rates again to retain inflation in the 0-2% target range.
Adrian Prettejohn, Europe economist at Capital Economics, said that the SNB communique suggested that the central bank’s policymakers have likely not used forex interventions “to a significant extent” — but may soon resort to such measures.
“We think the SNB will start to consider using FX interventions significantly once the policy rate falls to around 0.5%. At that point it will be a more finely balanced decision as to how much to rely on currency intervention rather than further rate cuts to provide further monetary policy support,” Prettejohn said in a note. More

The Conference Board’s consumer confidence index slid to 98.7, down from 105.6 in August, the biggest one-month decline since August 2021.
Respondents’ concerns focused mostly on jobs and inflation.

Consumers’ view on the economy tumbled in September, falling by the largest level in more than three years as fears grew about jobs and business conditions, the Conference Board reported Tuesday.
The board’s consumer confidence index slid to 98.7, down from 105.6 in August, the biggest one-month decline since August 2021. The Dow Jones consensus forecast was for a reading of 104. By contrast, the index had a reading of 132.6 in February 2020, a month before the Covid pandemic hit.

Each of the five components the organization samples fared worse on the month, with the biggest fall coming among those aged 35-54 and earning less than $50,000.
“Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income,” said Dana Peterson, chief economist at The Conference Board.
The last time the confidence index dropped more came as inflation was just beginning a climb to what ultimately was the highest level in more than 40 years.
Stocks saw some brief losses following the release, while Treasury yields moved lower.
In addition to the steep drop in the confidence index, the present situation measure worsened by 10.3 points to 124.3 and the expectations index was off 4.6 points to 81.7. On the expectations measure, a reading below 80 is consistent with a recession.

Respondents’ concerns focused mostly on jobs and inflation.
Those saying jobs are plentiful continued to decline, falling to 30.9% from 32.7% in August, while the jobs “hard to get” measure rose to 18.3%, up from 16.8%.
On inflation, the 12-month outlook rose to 5.2%, with concerns over price increases topping the list of economic concerns.
“The proportion of consumers anticipating a recession over the next 12 months remained low but there was a slight uptick in the percentage of consumers believing the economy was already in recession,” Peterson said.
The survey comes less than a week after the Federal Reserve voted to lower benchmark interest rates by a half percentage point, citing a more favorable outlook for inflation and worries over a potentially softening labor market. It was the first rate cut in four years and double the traditional quarter-point reduction.
The survey, though, was conducted through Sept. 17, the day before the Fed approved the rate cut.

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