The ECB And BoE Are Warning About Hikes, But All The Market Hears Is Cuts

The ECB And BoE Are Warning About Hikes, But All The Market Hears Is Cuts
Reda Farran, CFA

3 months ago1 min

Emboldened by slowing inflation, both the European Central Bank (ECB) and the Bank of England (BoE) put down their hiking boots and left interest rates unchanged at their latest meetings. But policymakers emphasized that the path toward curbing consumer price gains is far from over, and said it’d be premature to start thinking about interest rate cuts. And though both central banks have tried to hammer home the notion that interest rates will remain higher for longer, until inflation is convincingly back on target, investors don’t seem to be getting the message.

Traders now figure these central banks will have to cut rates – and they’ll have to do it sooner than they’ve been saying. See, data last week suggested that the eurozone and UK economies are headed for a period of near-stagnation (that is, low growth). And that’s got traders anticipating that the central banks will cut interest rates at least three times next year, starting in June. That’s a big shift from just seven weeks ago when traders thought the BoE and ECB would make their first cuts in early 2025 and September 2024, respectively.

And it will likely lead policymakers to toughen their language. Already, the BoE is warning that the market’s expected path for interest rates would be too “loose” to bring inflation sustainably back to target. And the ECB has warned that the market’s rate-cut expectations themselves could lead to overly relaxed financial conditions, potentially increasing the likelihood of needing to raise interest rates all over again.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG