Commentary: Central Banks in Spotlight
As widely anticipated, European Central Bank kept the base rate unchanged at 4.50%. ECB also revised its macroeconomic forecasts for Eurozone, with 2024 GDP growth now expected at 0.6% and year-end inflation at 2.3%. Despite both figures being revised downwards, ECB is still not expected to start cutting rates at the next (April) meeting, as central bankers still have to look at the wage data for signals. Generally in line with market consensus, Goldman Sachs expects ECB to start cutting rates in June and deliver a total of 100bps cuts throughout 2024.
During last week’s press conference, Chairman Powell said the Fed is “not far” from easing monetary policy. Similarly to ECB, the US Federal Reserve is expected to start cutting rates in June, with markets pricing in a near 100bps worth of cuts this year. Importantly, there is a c.25% chance for the first cut to take place on the May meeting. However, it must be noted that markets are now expecting significantly less rate cuts compared to earlier this year. In January, markets were foreseeing 5.5 25bps cuts in 2024, which is down to only 3.7 as of Friday last week. The shift in expectations has been closely mirrored by US Treasury markets as demonstrated by elevated yields.
This week the US February inflation will be reported. While headline CPI is forecasted to decline from 3.9% to 3.7%, the core figure is forecasted to remain at 3.1%.
