Steven Bell’s Post

The ECB's 25 basis point rate cut, a first ahead of the Fed, highlights the contrasting post-COVID recoveries of the Euro area and the U.S. This proactive move aims to support weaker Euro area growth, but the divergence in policy paths raises concerns about inflationary pressures and the need for global coordination.

The ECB's 25 basis point rate cut, a first ahead of the Fed, highlights the contrasting post-COVID recoveries of the Euro area and the U.S. This proactive move aims to support weaker Euro area growth, but the divergence in policy paths raises concerns about inflationary pressures and the need for global coordination.

From record low to record high in just 14 months Yesterday the European Central Bank (ECB) raised interest rates for the 10th meeting in a row to a record high of 4.00% (deposit rate). That caps a remarkable 450 bps tightening campaign that has played out over the last 14 months. While record high rates and almost impossibly fast tightening may feel hawkish, the rest of the ECB‘s communication was not hawkish. First off, forecasts for GDP were cut for 2023, 2024 and 2025 given the slowdown in data since earlier this year and the ongoing tightening campaign being waged by the ECB. That in and of itself is not a drastically dovish result, but it is nonetheless noteworthy. The ECB statement also offered a tentative signal for entering a holding pattern. Key quote from the monetary policy statement: „Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.“ In other words, the ECB thinks that rates at this level should be enough to push inflation back to target. And during her press conference President Lagarde did say that she „can‘t say rates have reached their peak“ but prior to that effort at preventing too much market enthusiasm she ran through a laundry list of bad news: the economy is „weak“ in Q3 and „likely to remain subdued in coming months“, „export demand and tight financial conditions have dampened growth“, „momentum in employment growth is slowing as the services sector is creating fewer jobs“ and „risks to growth are tilted to the downside“. Meanwhile „most measures of underlying inflation are starting to fall“. Finally while a „solid majority“ agreed with a decision to hike „some members would have preferred to pause“. Taken together, this looks a lot like a terminal rate has been reached. Bergos AG #macroeconomics #economy #centralbanks #ecb Source: Bespoke Investment Group, Reuters

Although the rate cut at the European Central Bank’s June meeting was fully anticipated, the market will inevitably be pondering the fact that the ECB is cutting policy rates into a cyclical economic upturn, and despite upward revisions to its inflation projections. Read our latest market response to find out what this might mean for the ECB’s policy outlook. https://bit.ly/45dcqL8

Although the rate cut at the European Central Bank’s June meeting was fully anticipated, the market will inevitably be pondering the fact that the ECB is cutting policy rates into a cyclical economic upturn, and despite upward revisions to its inflation projections. Read our latest market response to find out what this might mean for the ECB’s policy outlook. https://bit.ly/45dcqL8

Although the rate cut at the European Central Bank’s June meeting was fully anticipated, the market will inevitably be pondering the fact that the ECB is cutting policy rates into a cyclical economic upturn, and despite upward revisions to its inflation projections. Read our latest market response to find out what this might mean for the ECB’s policy outlook. https://bit.ly/45dcqL8

Although the rate cut at the European Central Bank’s June meeting was fully anticipated, the market will inevitably be pondering the fact that the ECB is cutting policy rates into a cyclical economic upturn, and despite upward revisions to its inflation projections. Read our latest market response to find out what this might mean for the ECB’s policy outlook. https://bit.ly/45dcqL8

Although the rate cut at the European Central Bank’s June meeting was fully anticipated, the market will inevitably be pondering the fact that the ECB is cutting policy rates into a cyclical economic upturn, and despite upward revisions to its inflation projections. Read our latest market response to find out what this might mean for the ECB’s policy outlook. https://bit.ly/45dcqL8

Our analysis of the European Central Bank’s decision on interest rates: Limited data flow all but guaranteed decision on interest rates As widely expected, the ECB kept interest rates on hold. President Lagarde struck a cautious tone during the press conference opting to limit forward guidance. While the language in the statement leaves the door open to cuts later this year, limited data since the last meeting as well as the absence of updated staff projections meant a pause was highly likely. Market pricing implied less than a 10% probability of a cut prior to the decision. Nonetheless, we maintain our view that the ECB will continue to gradually ease policy restrictiveness in the second half of the year with two further cuts to the key interest rate. You can read more here: https://lnkd.in/ecSa4SMr

Although the rate cut at the European Central Bank’s June meeting was fully anticipated, the market will inevitably be pondering the fact that the ECB is cutting policy rates into a cyclical economic upturn, and despite upward revisions to its inflation projections. Read our latest market response to find out what this might mean for the ECB’s policy outlook. https://bit.ly/45dcqL8