Could Europe lead global rate cutting in 2024?
Investors are betting that Europe will lead the world’s largest central banks on interest-rate cuts after one of the region’s most hawkish policymakers described a slowdown in inflation as “encouraging.”
Markets are fully pricing six quarter-point rate cuts by the European Central Bank in 2024 for the first time, a move that would take the key rate down 150 basis points to 2.5%. There’s also an almost 90% chance of the easing cycle starting in the first quarter of next year, a scenario that was barely contemplated just three weeks ago.
While markets worldwide are betting on more rate cuts, that view gained extra traction in Europe on Tuesday after Isabel Schnabel, a renowned ECB hawk, said inflation is showing a “remarkable” slowdown and that another hike in borrowing costs is “rather unlikely.” Markets have long dismissed chances of further tightening, but Schnabel had been cautioning that it was too early to rule out more hikes.
If traders are right, the ECB will be the first among major central banks to cut rates next year, and will deliver the most aggressive easing cycle. Still, some of Wall Street’s biggest names are already cautioning that expectations for cuts by central banks around the world are starting to look extended.
The Federal Reserve is expected to deliver its first move in May and lower rates by 125 basis points. In the UK, markets are currently pricing three Bank of England quarter-point cuts starting in June, and a 40% chance of a fourth move. A month ago, just two cuts were priced.
Rates markets in Australia have switched from betting on another hike by mid-2024 to pricing in a better than 75% chance for a cut by then. And even New Zealand’s central bank — which last week said it may need to hike
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