Slow growth puts ECB before Fed in rate-cut line

Tring places. Christine Lagarde is cutting in line. European Central Bank president on Thursday kept rates stey but hinted she will start lowering m from June. That could mean ECB pips U.S. Federal Reserve to become first big central bank to ease policy. But that’s only because euro zone is growing much slower than United States.

"We will kw a lot more in June.” With this seemingly adyne phrase at her press conference on Thursday, Lagarde vaulted ahe of Fed boss Jerome “Jay” Powell as major central banker most likely to cut rates first. What Lagarde wants to kw is wher w growth is slowing down sufficiently to reassure Teutonic hard-liners among her colleagues that inflation will t rebound. Growth in euro zone negotiated ws fell to 4.46% in fourth quarter of 2023, down from a record 4.69% in previous quarter, but still well above a level consistent with ECB’s 2% inflation target.

Data for this quarter will come out on May 23, in time for June 6 meeting of central bank. comments led trers to overwhelmingly bet that benchmark deposit rate will fall from a record high of 4% to 3.75% in June and 3% by December, according to derivatives prices collected by LSEG. In United States, on or hand, markets ascribe only a 14% chance to a rate cut in June.

Being first, in this case, is t cause for celebration. key reason why Lagarde ought to start easing policy soon is that euro zone GDP growth is flailing. ECB’s own staff expects it to be just 0.6% this year, a downgre from 0.8% it expected in December. Compare that with United States, where Atlanta Fed estimates GDP is growing at a hey 2.5%, and it’s easy to see why Powell may need to wait before cutting rates. With growth so subdued, euro zone inflation is also abating. ECB expects it to aver 2.3% this year before hitting 2% target in 2025 and falling below that in 2026. In States, by contrast, consumer price index rose 0.3% month-on-month in January for an annual reing of 3.1%.

With Powell worried about a resurgence of inflation driven by a hot ecomy and Lagarde trying to steer euro zone clear of a recession, ECB chief has most compelling claim to cut first.