US inflation March figure, again higher than expected, put an end to our scenario of a simultaneous first rate cut by the Fed, the ECB, and the BoE in June.
We now expect only two rate cuts by the Fed this year, the first in July and the second one in December. The possibility is even rising that the Fed will not cut rates at all this year. On the ECB ’s side, we maintain our expectation that the first cut will occur in June, but we have ruled out our back-to-back cuts forecast , favouring a more gradual easing of one cut per quarter . The ECB would end up cutting rates before the Fed.
In other words, Eurozone growth needs support, while US growth needs to be restrained. ECB interest rate cuts would help support the recovery of the economy against a background of falling inflation. These cuts would also facilitate the necessary fiscal consolidation efforts.
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