Fidelity: ECB cuts but Fed trajectory important

Fidelity: ECB cuts but Fed trajectory important

June 6, 2024

Interest Rates ECB Fed
Fed dollar (kreatikar, Pixabay)

Commenting on today’s ECB decision, Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International, said:

 'As was widely expected, the European Central Bank (ECB) kickstarted its rate cutting cycle by reducing policy rates by 25 basis points. The Governing council justified the moderation in the degree of policy restriction based on increased confidence of the disinflation process and the strength of the monetary transmission.

The staff projections for growth were revised higher by 30 basis points for 2024, which is in line with the green shoots we have been noting in our proprietary trackers since the start of the year, however overall growth remains below trend. Inflation projections were also revised higher for 2024 and 2025, although importantly, projections for 2026 remained unchanged within target.

However, the statement refrained from pre-committing to any future cuts and maintained a data-dependent stance. Recent upside surprises on wages and inflation are likely to keep the council members on the cautious side. As such, a July cut looks clearly off the table. The rate trajectory of the ECB will depend on the evolution of data from here on and the Fed, which we think will be unable to cut this year given the stickiness in US inflation.'

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