We thought at the start of the year that there’d have been more rate cuts from the Federal Reserve by now.
We thought at the start of the year thatthere’d havebeen more rate cuts from the Federal Reserve by now. We still think things will really get going in September. The half-time review Financial markets started the year expecting six rate cuts from each major central bank. But it didn't take long for more resilient US activity data, coupled with some unwelcome news on American inflation, for investors to begin rapidly scaling back those expectations.
In fact, the balance between data dependency and reputational risks has become more delicate, particularly given the dissenting views at the June meeting. The ECB won’t have any interest in making the June cut look like a policy mistake over the coming weeks, which would be a strong non-economic argument in favour of another rate cut at the September meeting. At the same time, however, the weakening economic momentum and stubbornly high domestic inflation is not a combination to cheer for.
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