ECB (European Central Bank) officials concluded last month that available evidence favours interest rate cuts after policymakers convening in Frankfurt said inflation was making “encouraging” progress toward their 2% target. However, comments by Governing Council member Pablo Hernandez de Cos suggested the first cut would come at the June meeting. Money markets are pricing three quarter-point reductions starting that month, with the chance of a fourth at around 60%.
Lower interest rates are generally considered positive for equity performance due to cheaper borrowing costs for businesses and consumers, which typically leads to increased investment, spending, and overall economic activity in the region.
Global markets will track interest rate trends closely in the week ahead as numerous central banks announce rate decisions, including Canada on 10 April.
The move by the SNB (Swiss National Bank) contrasts to comments from Minneapolis Fed President Kashkari, who suggested that the central bank won’t cut rates this year if inflation stalls. Equities lost strength following the remarks.
In addition, US non-farm payroll data released on 5 April showed that employers hired more workers than expected in March while also raising wages. These figures point to solid economic performance in the first quarter, which could potentially delay anticipated interest rate cuts from the Federal Reserve (Fed) this year.
Federal Reserve Chair Jerome Powell also signalled that policymakers will wait for clearer signs of lower inflation before cutting interest rates, even though a recent bump in prices didn’t alter their broader trajectory. Powell said recent inflation figures — though higher than expected — did not “materially change” the overall picture.
He reiterated his expectation that it will likely be appropriate to begin lowering rates “at some point this year.” With regard to inflation, Powell said “it is too soon to say whether the recent readings represent more than just a bump,”
During a speech at Stanford University in California last, Powell affirmed the Fed’s stance on only lowering its policy rate when it has greater confidence that inflation is moving sustainably down toward 2%.
Federal Reserve Bank of Atlanta President Raphael Bostic said it will likely be appropriate to lower interest rates in the fourth quarter, emphasising the bumpy nature of inflation progress. Bostic reiterated his expectation for just one rate cut this year, pointing to the strength of the economy and a slower decline in inflation. The Atlanta Fed chief is a voting member of the Fed’s policy-setting committee this year.
