AXA IM: Both Fed and ECB will most likely wait untill June 2024 to cut rates

AXA IM: Both Fed and ECB will most likely wait untill June 2024 to cut rates

December 18, 2023

Interest Rates Monetary policy
Rente

Jay Powell did not push back against market pricing last week, while Christine Lagarde was very clear in her refusal to embark on any discussion of rate cuts.

Still the prognoses of AXA Group Chief Economist and Head of AXA IM Research Gilles Moëc remains the same for both the Fed and the ECB:

'In a nutshell, we think the Fed may be today too relaxed on the capacity of the current macro trajectory to bring inflation back to 2% swiftly, while the ECB may be overly cautious. This keeps us comfortable with our baseline that both central banks will ultimately wait until June 2024 to cut, although this may come too late for the ECB given where the Euro area stands in the cycle.'

AXA IM does express concerns that the ECB cuts might come too late:

'This makes us more comfortable with our call that the ECB will wait until June to cut for the first time and will deliver “only” 75 bps worth of accommodation next year, although from a normative point of view we are concerned with the risk the central bank waits too long amid a quickly deteriorating economy.'  

On the ECB’s plans to gradually reduce the PEPP (Pandemic Emergency Purchase Programme) Moëc writes:

'Where however we think the ECB erred on the side of supporting the Euro area’s economy it’s on their patience with ending the reinvestment of PEPP. The Governing Council 'ripped the band aid' and chose to announce the schedule last week already, but the news that for the first half of 2024 reinvestments would not be touched, with a gradual roll-off in the second half of the year only, has brought comfort to the bond market in peripheral countries.'

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