Candriam: ECB is strengthening the case for a first cut in June

Candriam: ECB is strengthening the case for a first cut in June

April 11, 2024

Interest Rates ECB
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By Nicolas Forest, CIO of Candriam

ECB is ready to cut independently of the FED at least in the very short term. With the inflation rate slowing down toward its target of 2%, wage data moving in the right direction and a clear consensus among ECB Council members, ECB has communicated a clear message regarding the start of the easing cycle in June.

This marks a significant difference with the intentions of the Fed, which appears to be backtracking, concerned about the rebound in inflation to 3.5% in March. Consequently, it is more likely that the Fed will delay its easing cycle to later in the year.

President Christine Lagarde will need to adopt a different approach and pursue an independent monetary strategy going forward. This is especially critical given its restrictive stance and its impact on the European economy. We still anticipate two rate cuts after June, however Lagarde will not pre-commit to a specific path for future cuts. She will remain in data dependency mode and assess the situation on a meeting-by-meeting basis. This approach is particularly prudent as oil prices climb to new highs amid geopolitical risks and stronger demand in the near term. The main fear is that headline inflation could rise again.

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