Are interest rates cuts in jeopardy?

Are interest rates cuts in jeopardy?

Key Takeaways

  • Talk of early 2024 US rate cuts, which spurred a strong rally in bonds and equities globally, has seen a significant reversal.
  • In the US, near-term measures of consumer price inflation are at or close to target and wage inflation is slowing. But monetary policy is restrictive and with a Presidential election looming, the Fed is mindful about a decision on rates becoming a political issue.
  • In Europe, price inflation fell steeply towards the end of last year to well below the ECB’s forecasts. But the outlook for wage inflation is cloudy.
  • The outlook for wage inflation is equally murky in the UK and the 10% hike in the minimum wage in April could add to upward pressure. The prospect of big tax cuts in the March budget also urges caution.
  • We still expect big rate cuts this year and with the BoE probably the last to make the first cut.
Transcript
Steven Bell
Chief Economist, EMEA
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