Federal Reserve policymakers stick to rate cut roadmap

The ECB is expected to cut interest rates at least once before August, but Christine Lagarde remains vague on the timeline of any cuts

Wed, 20 Mar, 2024 - 18:28

Cáit Caden

US financial regulator, the Federal Reserve, is staying on course to cut interest rates three times this year, according to new economic projections, but overall it remains cautious as inflation stays above the international target of 2%.

Nine of the Fed’s 19 policymakers see three quarter-point rate cuts this year, and nine see two or less.

For now, US interest rates remain unchanged as inflation remains higher than expected, but pressure continues to mount on global central banks to cut rates.

In Europe, analysts and market experts have predicted that the European Central Bank (ECB) will cut rates at least once before it breaks for summer in August, but president Christine Lagarde remains vague on the timeline of any reductions.

“We are not yet sufficiently confident that we are on a sustainable path towards our inflation target,” said Ms Lagarde.

She added that the ECB will have a new set of projections by the time it meets in June, which will drive monetary policy decisions.

Earlier this month, the ECB kept its key interest rate unchanged at 4%.

The regulator next meets on April 11, June 6, and then on July 18 before its summer break in August.

In a statement, Ms Lagarde also said the ECB expects inflation to return to 2% by mid-2025, earlier than previously predicted.

Ms Lagarde added that, once reached, the 2% target is likely to be more durable and less vulnerable to commodity prices including energy, “although the latter can always prove hazardous”.

Consumer confidence remains below the long-term average in the eurozone, despite the ECB’s aggressive interest rate campaign to tamper inflation.

A survey by the European Commission showed consumer confidence in the eurozone rose slightly by 0.6 percentage points during March.

Oil prices fell ahead of the Fed’s meeting as investors prepared themselves for a more hawkish outlook on interest rates.

Brent crude futures declined 1.4% at around $86 a barrel, which eventually will be felt by consumers at forecourt pumps.

However, oil markets could tighten following a series of Ukrainian drone strikes damaged some major Russian oil refineries.

Meanwhile, Bank of England will meet on Thursday, March 21, to discuss monetary policy but, like the Fed and the ECB, they are likely to take a cautious approach.

However, UK inflation fell more sharply than expected to the lowest level since 2021, giving mortgage holders hope for reduced borrowing costs in the near future.