The Swiss National Bank cut its benchmark interest rate by 25 basis points to 0% on Thursday, marking the lowest level since 2022 and amplifying the gap between U.S. and Swiss rates to record highs.
The move pushes the gap between the U.S. federal funds rate upper bound and Switzerland’s rate to 4.5 percentage points—the largest differential on record.
What It Means For The Economy
The SNB said its decision was influenced by declining inflationary pressure and a deteriorating global economic outlook.
“In its baseline scenario, the SNB anticipates that growth in the global economy will weaken over the coming quarters,” the central bank said. While it sees inflation in the U.S. rising, further declines are expected in Europe.
The SNB also warned that risks remain tilted to the downside, citing potential trade tensions and uncertainty around fiscal policy.
The Swiss rate cut means businesses and households in Switzerland now face the lowest borrowing costs among developed nations.
Lower interest rates could also translate into increased demand by homebuyers and a weaker currency that benefits exporters.
The yield on the 10-year Swiss government bond is just 0.3%, effectively allowing the Swiss government to borrow at almost no cost.
In comparison, the U.S. 10-year Treasury yield stands at 4.40%, creating a spread of 4.1%, just shy of the record 4.3% gap seen in December 2024.
According to Goldman Sachs economist Sven Jari Stehn, the SNB will deliver another 25-basis-point cut to a terminal rate of negative 0.25% in September on the basis of the weaker growth and inflation.
Fed Holds Rates, Inflation Forecasts Climb
A day before the SNB’s decision, the Federal Reserve held interest rates steady at 4.25%-4.50%, with Chair Jerome Powell saying the central bank remains cautious about cutting too soon.
The Fed’s updated projections now see core PCE inflation at 3.1% in 2025, up from March’s 2.8% forecast, and 2.5% by December.
Despite progress on inflation, Powell said the Fed is not yet confident enough to begin easing. Its dot plot still forecasts two rate cuts in 2025, consistent with March, and two in 2026—down from three previously projected.
Trump Pressures Fed: ‘We’d Be Saving Trillions’
President Donald Trump reignited his feud with Powell on Wednesday, calling for a more aggressive rate-cutting cycle.
“We have almost no inflation. We have only success. I’d like to see interest rates get down now,” Trump said, adding that just a one-point cut could deliver major relief for U.S. debt servicing costs.
According to Trump, the Fed should cut interest rates between 2 and 2.5 percentage points.
Slashing rates would lead to massive savings on the debt refinancing front: “We’d be saving $700 billion, $800 billion—trillions over time,” he said.
Read now:
Image: Shutterstock/lunopark
