18 days ago • 1 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.
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