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This marks the seventh consecutive rate cut as the ECB continues its monetary easing cycle.
ECB President Christine Lagarde emphasised that inflation has fallen below the 2% target, but economic growth remains sluggish.
Investors are now watching for further rate cuts later in the year, with markets pricing in another 0.25% reduction in October.
This decision aims to counter economic growth concerns fueled by global trade tensions, particularly the impact of tariffs imposed by the United States.
The ECB’s move is expected to make borrowing more affordable, supporting consumer spending and business investment.
Inflation in the eurozone has fallen to 2.2%, close to the ECB’s target, shifting the focus to growth worries.
The eurozone economy grew by a modest 0.2% in the last quarter of 2024, highlighting the need for measures to stimulate activity.
The ECB’s decision reflects the challenges posed by trade uncertainties and the potential impact of tariffs on European industries.
This comes amidst increasing uncertainty surrounding the economic landscape. While the Fed’s current stance is to hold interest rates steady, it has reiterated its intention to implement two rate cuts later this year – a prospect that has garnered significant attention and appreciation from investors.
Fed Chair Jerome Powell reportedly expressed measured optimism about the state of the U.S. economy during his press conference.
He highlighted the strength of labour markets, and the progress made toward reducing inflation, which, although still above the 2% target, has shown improvement.
Powell also addressed potential short-term impacts of tariffs but downplayed their long-term influence on inflation.
Financial markets responded positively to the announcement, with major stock indices such as the Dow, S&P 500, and Nasdaq rallying after the recent slump.
This reflects investor confidence in the Fed’s ability to navigate economic challenges while supporting growth. However, economists warn of potential risks, including stagflation, as uncertainties tied to Trump’s tariffs and consumer spending persist.
The decision underscores the Fed’s balancing act between fostering economic stability and addressing inflationary pressures, leaving room for cautious optimism as the year unfolds.
This decision comes amid concerns over a slowdown in the world’s fifth-largest economy.
The central bank forecast real GDP growth for next fiscal year at 6.7%, and inflation rate at 4.2%.
The RBI’s Monetary Policy Committee (MPC) cited the need to support economic activity as the primary reason for the rate cut. The Indian economy has been experiencing sluggish growth, with GDP expanding at a slower pace than expected.
The latest data shows that the economy grew by just 5.4% in the September quarter, the slowest rate in seven quarters. This slowdown has been attributed to tepid urban consumption and sluggish manufacturing.
Inflation, which had been a major concern for the RBI, has shown signs of easing. Retail inflation dropped to a four-month low of 5.22% in December 2024, providing the central bank with some room to focus on growth rather than solely on price stability.
RBI Governor Sanjay Malhotra, in his first monetary policy review, reportedly stated that inflation is expected to further moderate in 2025-26.
The rate cut is expected to benefit borrowers, including homeowners and small businesses, by making borrowing cheaper. However, it may also lead to lower returns on fixed deposits, posing a challenge for savers, especially senior citizens who rely on interest income.
The government’s recent budget, which included sweeping income tax cuts, is also aimed at putting more money in the hands of consumers and boosting spending.
Together with the rate cut, these measures are expected to provide a much-needed stimulus to the economy.
While the rate cut is a positive step towards reviving growth, it also underscores the challenges facing the Indian economy.
The RBI will need to carefully monitor inflation and other economic indicators to ensure that the measures taken do not lead to unintended consequences such as higher inflation.
As expected, the Federal Open Market Committee (FOMC) left its borrowing rate unchanged in a range between 4.25% and 4.50%.
The decision followed three consecutive cuts since 2024 and marked the first Federal Reserve meeting since frequent Fed critic Donald Trump assumed the presidency last week. He almost immediately expressed his intention for the central bank to cut rates.
The post-meeting statement scattered a few clues about the reasoning behind the decision to hold rates steady. It offered a more optimistic view on the U.S. labour market while losing a key and telling reference from the December 2024 statement that inflation ‘has made progress toward’ the Fed’s 2% inflation goal.
Text appearing for the first time in the new statement is in red and underlined. Black text appears in both statements.
In just over a week, Trump has disrupted Washington’s policy and norms by signing hundreds of orders aimed at implementing an aggressive agenda.
The U.S. president has endorsed tariffs instruments of economic and foreign policy, authorised a wave of deportations for those crossing the border illegally, and a series of deregulatory initiatives.
Trump spoke of his confidence that he will bring down inflation and said he would ‘demand’ that interest rate be lowered ‘immediately.’
Although the president lacks authority over Fed beyond nominating board members, Trump’s statement indicated a potentially contentious relationship with policymakers, similar to his first term.
Inflation has moved down sharply from the 40-year peak it hit in mid-2022, but the Fed’s 2% goal has remained elusive.
In fact, the central bank’s preferred pricing gauge showed headline inflation ticked higher to 2.4% in November, the highest since July, while the core measure excluding food and energy held at 2.8%.
This decision was influenced by sustained inflation and rising wages, signalling a cycle in the economy.
The move was expected by many economists and resulted in the Japanese yen strengthening against the dollar.
The Bank of Japan has indicated that more interest rate hikes may be on the horizon.
The central bank reportedly cited monetary tightness as Moscow wages an ongoing battle with sky-high inflation.
What is the rate of inflation in Russia
As of November 2024, the rate of inflation in Russia is 8.9%.
The Fed indicated that it probably would only lower twice more in 2025, according to the closely watched ‘dot plot’ matrix of individual members’ future rate expectations
While the decision itself was closely watched, the primary concern centered on what they would communicate regarding its future direction, considering inflation remains above and economic growth is relatively – conditions that do not typically align with easing.
The Fed said that it would probably only lower the interest rate twice in 2025. The markets reacted with a sharp pullback with the Dow hitting a 10-day losing streak – last seen in 1974.
The consumer price index (CPI) showed a 12-month inflation rate of 2.7% after increasing 0.3% on the month, the Bureau of Labor Statistics reported Wednesday 11th November 2024. The annual rate was 0.1 percentage point higher than October 2024.
Excluding food and energy costs, the core CPI was at 3.3% on an annual basis and 0.3% monthly. The 12-month core number was unchanged from a month ago.
All of the numbers were in line with consensus estimates.
The data comes with Federal Reserve deciding over what to do at their policy meeting next week. Markets strongly expect the Fed to lower its benchmark short-term borrowing rate by 0.25% at the meeting on 18th December 2024.
It is unlikely now that a January rate cut will happen as the FOMC measures the impact recent cuts have had on the economy.
Odds are of a 99% certainty of a cut in December 2024.
This move follows September’s significant 0.5% cut. The overnight borrowing rate, while primarily affecting interbank lending rates, also typically impacts consumer debt products including mortgages, credit cards, auto and other loans.
Economists had anticipated a growth of 0.2%, following a 0.3% increase in the second quarter.
Analysts predict that euro zone growth may pick up cautiously in the upcoming months, in light of lower interest rates and subsiding inflation.
At its October 2024 meeting, the European Central Bank (ECB) reduced rates for the third time this year, following a final reading of September’s EU headline inflation at 1.8%.
The ECB pointed to sustained indications of sluggish activity in the euro area as a significant reason for the rate cut in October.
Markets have completely factored in another 0.25% reduction by the ECB for its final meeting of the year in December 2024.
Germany, the largest economy in the euro zone, reported an unexpected 0.2% growth in the third quarter, as per figures released on Wednesday 30th October 2024. This growth helped the country steer clear of the recession predicted by some economists.
This rate hike surpasses the 1% (100 basis-point) rise anticipated by analysts and sets the bank’s benchmark rate at its highest level since February 2003, as reported by analysts.
Previously, the key rate had been raised by 1% (100 basis points) to 19% in September 2024.
It was reported that the annual seasonally adjusted inflation hit an average of 9.8% in September 2024, up from 7.5% in August 2024.
It is now anticipated the rate will stick at around the 8.0% – 8.5% range for the remainder of 2024. This is running above a July 2024 forecast of around 6.5% – 7.0%.
See more central bank interest rate moves here
The People’s Bank of China (PBOC) has announced a reduction in the one-year loan prime rate (LPR) to 3.1% and the five-year LPR to 3.6%.
The one-year LPR affects corporate and most household loans in China, whereas the five-year LPR is a reference for mortgage rates.
This adjustment was anticipated. The governor of China’s central bank reportedly on Friday 18th October 2024 hinted at a forum in Beijing that the loan prime benchmark rates would decrease by 0.20% to 0.25%.
At its October meeting, the central bank decreased the deposit rate by 0.25%. This decision followed a slowdown in the euro area’s price increases to 1.8% in September 2024, falling below the central bank’s target of 2%.
The EU interest rate is now: 3.25%
This indicates that inflation, which is the rate at which prices increase over time, is currently below the Bank of England’s target of 2%, potentially leading to further reductions in interest rates next month.
The Office for National Statistics (ONS) reported that petrol and diesel prices saw a notable decrease, falling by 10.4% in September 2024compared to the same month the previous year.
Additionally, the cost of fares for domestic, European, and long-haul flights contributed to the lower inflation rate. While fares typically decrease after the summer peak, this year they have reduced more than usual.
With inflation dropping below economists’ expectations, the markets are anticipating a cut in interest rates at the Bank of England’s upcoming meeting in November 2024. The present rate stands at 5%, and a reduction of 0.25% is now deemed highly probable.
The previous rate was the highest seen for 23 years and remained unchanged even though the Fed’s favoured inflation gauge has decreased from 3.3% to 2.5%, and the unemployment rate has climbed from 3.5% to 4.2% during this period.
Following the interest rate cut today, 18th September 2024 of 0.50%, the new rate now stands at 4.75% to 5.0%.
The Bureau of Labor Statistics announced on Thursday 12th September 2024 that the producer price index (PPI), which measures the prices received by producers for goods and services for final demand, increased by 0.2% for the month, matching the consensus estimate.
Excluding food and energy, the PPI experienced a 0.3% increase, slightly above the 0.2% consensus estimate. This core increase persisted even when trade services were removed from the calculation.
This expected decision follows a period of sluggish economic growth in the eurozone and a decrease in inflation, which approached the central bank’s 2% target in August.
The EU interest rate is now 3.5%.
Although numerous analysts predicted that the Bank of England might announce a reduction in interest rates at its August 2024 meeting, the absence of definitive signals from the central bank left the decision clouded in uncertainty.
The Monetary Policy Committee (MPC) ultimately cast a 5-4 vote in favour of the reduction, with Governor Andrew Bailey stating that the committee would proceed with caution.
Federal Reserve Chair Jerome Powell ended a press conference in which he gave markets exactly what they wanted; a strong indication of a September 2024 rate cut.
Federal Reserve officials held short-term interest rates steady but observed that inflation is getting closer to its 2% target.
The FOMC did not signal an immediate rate cut; they reiterated that further progress is necessary before considering rate reductions. However, Federal Reserve Chair Powell’s subsequent statement was markedly dovish, hinting at a potential rate cut in September 2024.
Markets were generally happy with the news after moving up all day in anticipation of the confirmation of a September cut. The Dow Jones, Nasdaq, Russell 2000 and S&P 500 all climbed before and after the news.
Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations.
Personal income rose just 0.2%, below the 0.4% estimate. Spending increased 0.3%, meeting the forecast, while the personal savings rate decreased to 3.4%.
This PCE reading may encourage the Fed to cut rates now.
Gold prices continued to peak at new record highs Tuesday and Wednesday 15th and 16th July 2024.
On Monday 15th July 2024, Powell reportedly said the Fed won’t wait for inflation to reach the central bank’s 2% target before it begins cutting, due to the ‘lag’ in policy effects. He reportedly said the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level. The monthly inflation rate dipped in June 2024 – the first time in over four years.
The price increase has been aided by encouraging comments from the Federal Reserve that it will now more likely cut interest rates in September 2024 following comments from Fed Chair Jerome Powell.
And that has given market investors and traders more confidence. According to the CME FedWatch tool, traders are convinced the FOMC will cut rates by September 2024.
As interest rates fall, gold usually becomes more appealing compared to fixed-income assets such as bonds and general savings accounts.
Federal Reserve Chair Jerome Powell reportedly said Monday 15th July 2024 that the central bank will not wait until inflation hits 2% to cut interest rates.
Powell referenced the idea that central bank policy works with ‘long and variable lags’ to explain why the Fed wouldn’t wait for its target to be hit.
‘The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,’ Powell reportedly said.
Instead, the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level, Powell remarked.
‘What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,’ he reportedly said.
Powell also said he thinks a ‘hard landing’ for the U.S. economy was not ‘a likely scenario.’
It looks like it is time for that rate cut, he didn’t say that!
But the UK inflation is on target now at 2% so that’s some consolation. The PM claimed credit as the inflation target was met – happily informing us that his plan was working. But isn’t it the job of the Bank of England to maintain inflation at 2%?
Not that they have done a very good job of that either.
The Bank has maintained the interest rates at 5.25% for the seventh consecutive time to combat inflation, resulting in increased mortgage repayments and higher savings rates.
The interest rates, at their peak for the past 16 years, have been sustained at 5.25%. Currently, there are indications of a shift in stance, with a growing consensus for a potential reduction in August 2024.
The Federal Reserve’s decision to maintain interest rates in 2024 could have significant implications for the U.S. economy.
Fed cred – credibility would be the first to go!
The cost of borrowing would remain unchanged. This could discourage businesses from taking out loans for expansion or investment, potentially slowing economic growth. Consumers may also be less inclined to take on debt for major purchases, such as homes or cars, which could impact sectors reliant on consumer spending.
Value of the U.S. dollar could strengthen relative to other currencies. A higher interest rate typically attracts foreign investors seeking better returns, increasing demand for the dollar. While a strong dollar can benefit consumers by making imports cheaper, it can hurt exporters whose goods become more expensive for foreign buyers.
The decision could signal the Fed’s confidence in the economy’s health. By not lowering rates, the Fed may be indicating that it believes the economy can withstand higher borrowing costs without slipping into recession. This could boost investor confidence and potentially lead to increased market activity.
However, the decision could also exacerbate wealth inequality. Those with investments tend to benefit from higher interest rates, as they can earn more from savings and bonds. Conversely, those living paycheck to paycheck may not see any immediate benefit and could face higher costs if they need to borrow.
In conclusion, should the Federal Reserve decide to maintain interest rates in 2024 this could have a mixed impact on the U.S. economy.
The effects would likely be felt across various sectors, influencing everything from business investment and consumer spending, credit to the strength of the dollar and wealth inequality. As always, the actual outcome would depend on a multitude of factors, including the overall health of the global economy and domestic fiscal policy decisions.