Rates, the ECB will anticipate the Fed in lowering interest rates

Rates, the ECB will anticipate the Fed on rates

That the ECB played its cards on rates before the Fed is a move that has never been seen or even expected, but it will happen. Because, most likely in next week’s meeting, the The European Central Bank will lower, for the first time in 5 years, the cost of money to a rate of 4.25%. However, the ECB will not be alone in this decision given that both the Swiss National Bank and the Swedish Riksbank have already “cut”.

Obviously the weight of these is not even remotely comparable to the economic strength of the Eurozone (one sixth of global GDP and around 20% of trade). It is worth remembering that it was precisely the ECB that started later than the Fed when it came to raising them and therefore, this measure gives the ECB’s top management an image of unusual courage. Why this unusual courage on the part of Christine Lagarde who will anticipate the moves of her colleague Jerome Powell? First of all because prices in the Old Continent have moved in a much more moderate manner than what they are doing in the USA, driven by high consumption and full employment. And, despite a better than expected start to the year, Eurozone GDP showed a low growth trend, only 0.4% in the first quarter.

Rates, what are the benefits of this move ahead of the Fed

Many observers are convinced that this move, stimulated by controlled inflation, will bring great benefits. First of all, it could be a “booster” to restart growth as credit would weigh less on consumers and businesses. And then it would give substance to a feeling of greater trust towards Europe, which would translate into a desire to invest and consume, especially in a complicated historical and geopolitical moment where the main concerns are towards the war in Ukraine and tensions in world trade. However, there is no shortage of risks in this move. The dollar could strengthen against the euro, making our exports more expensive and this certainly would not be a trivial aspect. In any case, however, the probable decision of the ECB is almost mandatory to manage a fine balance between the desire to stimulate economic growth and the management of inflation, controlled but not tamed. In September, if the Fed doesn’t touch anything, we will know whether the ECB wants to continue to maintain its pressure of three cuts in 2024. Only then will we have a clearer idea of ​​where Eurozone monetary policy wants to go.