2024-04-11 09:10:08
In Europe, now that inflation appears to be under control, will interest rates finally fall back to more affordable levels? It is up to the Governing Council of the European Central Bank to decide. At the end of its meeting scheduled for this Thursday in Frankfurt, its president, Christine Lagarde, should make her intentions known.
Christine Lagarde could even announce a first reduction in its key rate this Thursday, the most daring bets. But it must be recognized that they are an ultra-minority. Everyone knows that central bankers hate surprise effects and prefer to communicate their intentions well in advance, just to avoid a heatwave on the markets. But this option is one of the multiple hypotheses discussed by experts. The subject is passionate on the bond markets where traders are making bets on the timetable which will be announced shortly, with a first cut in European rates envisaged in June, during the next meeting of the council of governors. Many people think that the BCE will act faster and stronger than the Federal Reserve.
Read alsoThe Fed and the ECB maneuvering in the face of inflation
A highly anticipated rate cut in June
They estimate that it could cut its rate by 1% in 2024, compared to only 0.65% for the Central Bank of the United States. For the record, the ECB’s key rate is at 4% and that of the Fed at 5.5%. Borrowing is much more expensive in the United States. The European Central Bank will undoubtedly get ahead of the Fed because inflation has really fallen in Europe. It is now only 2.4% in the euro zone, so it is getting closer to the good inflation objective set at 2%. There is no longer any reason to maintain pressure on interest rates. Whereas in the United States, it’s the opposite. Inflation has started to rise again, it was at 3.5% in March, we learned yesterday. In this context, the Fed will take its time; it could postpone its first cut until September. The two monetary zones also diverge in terms of growth.
Also read: The Fed and the ECB ready to let go in the fight against inflation?
The big gap between the United States and Europe
In the United States, activity remained very dynamic. Contrary to what was feared, the policy of raising interest rates did not break growth. La Fed therefore focuses on its price control mission. On the other hand, in Europe, activity has been weak for a year and a half. Businesses are borrowing much less because credit has become too expensive. Like individuals who postpone real estate projects for the same reasons. There is therefore an urgent need to lower key rates to revive growth. This is all the more urgent as the effect on the economy will not be immediate. It will take months before the drop is reflected in credit demand. Giving the signal for a decline would already be a positive signal. Likely to restore confidence to entrepreneurs. Consumers, on the other hand, need something concrete. They do not feel at all the benefits of the anti-inflation fight led by the ECB and notice in the supermarket that the bills are still as steep as ever.
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