AXA IM: Market expects ECB to cut more than the Fed in 2024

AXA IM: Market expects ECB to cut more than the Fed in 2024

Monetary policy
Europa (02) omlaag

ECB will offer no more than three interest rate cuts this year, with the first one probably in June or perhaps already in May, for a total of at least 100bps.

The ECB will probably cut interest rate in June, even if there is a significant risk the ECB moves in April already, thinks Gilles Moëc, AXA Group Chief Economist and Head of AXA IM Research, today. ‘Yet, if that happens – and assuming the economy remains mediocre, rather than turns truly catastrophic – I would still expect the central bank to stick to a slow pace of accommodation. This should put a floor on the market’s expectations for the overall quantum of cuts.’

‘The market is now expecting the ECB to cut more than the Fed by the end of 2024. This probably reflects the widening gap between the US and the Euro area when it comes to the real economy, even if some of the concerning issues in the details of US inflation, in particular the resistance of services prices, can now also be found in Europe. As often here we are torn between our normative approach – what we think the central bank should do – and the predictive one – what we think the central will end up doing.’

‘From a normative point of view, there is little doubt in our mind that given the state of the economy, the ECB can afford to take a leap of faith and cut by more than 100bps this year already. From a predictive point of view though, the terms of the debate between hawks and doves – now laid out very publicly – make us think the ECB will refrain from offering more than three cuts this year.’