Rate Cuts Debate: How Will The Fed, ECB And BoE React?

<p><a href="https://admiralmarkets.com/analytics/traders-blog/rate-cuts-debate-how-will-the-fed-ecb-and-boe-react"><picture class="lozad" data-iesrc="https://fxmedia.s3.amazonaws.com/articles/Rate_Cuts_Debate_How_Will_The_Fed_ECB_BoE_React.jpg" data- data- data-alt="title of blog regarding rate cuts" data-height="376" data-width="800"><source type="image/webp" media="(min-width: 640px)" srcset="https://dynamic-images.admiralmarkets.com/720x,webp/fxmedia.s3.amazonaws.com/articles/Rate_Cuts_Debate_How_Will_The_Fed_ECB_BoE_React.jpg"></source><source type="image/webp" media="(max-width: 639px)" srcset="https://dynamic-images.admiralmarkets.com/375x,webp/fxmedia.s3.amazonaws.com/articles/Rate_Cuts_Debate_How_Will_The_Fed_ECB_BoE_React.jpg"></source></picture></a></p><p>Interest rates have drawn a lot of attention in the last one and a half years, as central banks across the world raised them to counterbalance the effect of inflation that influences consumer budgets and spending.</p><p>As raising borrowing costs seemed to control inflationary pressures in the larger economies, the interest rate cuts’ debate started with some economists suggesting that we would likely see several rate cuts coming from the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE).</p><p>However, data showing economic resilience in the US, UK and Eurozone seem to push back forecasts regarding rate cuts. In this article, you will have the opportunity to read the updates related to monetary policies.</p><div>
<h2>Table of Contents</h2>
<ul>
<li><a href="https://admiralmarkets.com/analytics/traders-blog#mcetoc_1hkgrksth48">Federal Reserve Rate Cuts: Optimism In Check</a></li>
<li><a href="https://admiralmarkets.com/analytics/traders-blog#mcetoc_1hkgrksth49">ECB Policymakers Push Back Rate Cut Expectations </a></li>
<li><a href="https://admiralmarkets.com/analytics/traders-blog#mcetoc_1hkgrlg345i">BoE: Between A Rock And A Hard Place</a></li>
<li><a href="https://admiralmarkets.com/analytics/traders-blog#mcetoc_1hkgrlg345j">Interest Rate Cuts And Trading With Admirals</a></li>
</ul>
</div><h2>Federal Reserve Rate Cuts: Optimism In Check</h2><p>The disparity between market expectations and the US central bank’s projected interest rate actions in 2024 puts future asset values in question. Some analysts suggest that the Fed could proceed with 140-150 basis points of cuts by the end of this year. However, the Fed December minutes implied that borrowing costs could be reduced by 75 basis points over the same period.</p><p>The Fed’s board estimated in its December Summary of Economic Projections that its benchmark interest rate would be lowered by 250 basis points by the end of 2026. Some economists note that the major difference between the Fed’s projections and market expectations is the pace at which rate cuts would take place.</p><p>Goldman Sachs (GS) CEO David Solomon told CNBC reporters attending the 54th WEF Annual Meeting in Davos that “<a rel="nofollow noopener" href="https://www.youtube.com/watch?v=Ge1TWCw32RY" target="_blank">the market is clearly running ahead</a> to a position of many cuts. There’s no question we’ve made a lot of progress on inflation.” Commenting on market optimism related to future rate cuts, Solomon added: “I think it’s hard for me to see the market’s view of seven cuts this year. I do think there’s a reasonable possibility of some interest rate cuts this year, some easing. But it’s really going to be dependent on what the data says.”</p><p>Federal Reserve (Fed) of Atlanta President <a rel="nofollow noopener" href="https://www.atlantafed.org/news/press-room/media-advisories/2024/01/18/remarks-metro-atlanta-chamber" target="_blank">Raphael Bostic, in his remarks delivered at the Atlanta Chamber of Commerce</a>, said that “the baseline is for rate reductions sometime in Q3, but care is needed to not cut too soon or risk a refreshed price spiral.” Bostic, a member of the Fed’s Federal Open Market Committee (FOMC), noted that rate cuts could occur before July but only if there is "convincing evidence" that inflation is slowing faster than expected.</p><h2>ECB Policymakers Push Back Rate Cut Expectations</h2><p>Headline inflation has fallen in the euro bloc due to the strict monetary policy implemented by the ECB, with core inflation being more resilient. Inflation remains above the ECB’s target with Germany’s economy, the largest in the bloc, struggling to avoid recession.</p><p>A Reuters poll, published on January 18th, showed that <a rel="nofollow noopener" href="https://www.reuters.com/markets/europe/expectations-ecb-interest-rate-cut-q2-grow-stronger-2024-01-18/" target="_blank">38 out of 85 economists forecast an interest rate cut in July</a>. In the same poll, 21 forecast a rate cut in April, while 23 don’t see a change in monetary policy before the third quarter of 2024 and beyond. Market reports have shown that analysts expect a total of 150 basis points rate cuts during this year.</p><p>However, some members of the ECB's governing council are against “aggressive” easing calls coming from market participants. For example, the Austrian central bank’s head, Robert Holzmann, told CNBC reporters: “<a rel="nofollow noopener" href="https://www.cnbc.com/2024/01/15/possible-to-have-no-rate-cut-this-year-european-central-bank-member.html" target="_blank">I cannot imagine that we’ll talk about cuts yet</a>, because we should not talk about it. Everything we have seen in recent weeks points in the opposite direction, so I may even foresee no cut at all this year.”</p><p>During a discussion at the Bloomberg House in Davos, the ECB’s leader, Christine Lagarde, was asked regarding potential rate cuts and how the euro bloc’s central bank could react to the new economic conditions as inflation has fallen in the last few months. Lagarde replied that the <a rel="nofollow noopener" href="https://www.euronews.com/business/2024/01/17/davos-2024-ecb-president-lagarde-hints-at-potential-rate-cuts-by-the-summer" target="_blank">ECB's borrowing costs may have peaked</a> while emphasising the bank's reliance on economic data when making decisions. The ECB’s head suggested that “too optimistic markets don't help the ECB's inflation fight. We are optimistic that we have a credible prospect of a return of inflation to 2% in 2025 but a lot still needs to go well for that to happen.”</p><h2>BoE: Between A Rock And A Hard Place</h2><p>The UK’s economy was hit by record-high inflation figures during the previous years, putting a strain on consumers’ budgets as it drove prices to levels not seen for many years. The BoE’s board reacted by increasing interest rates to control inflation, making things difficult for people who try to repay their loans.  </p><p>The implementation of strict monetary policy has reduced inflation figures, but<a rel="nofollow noopener" href="https://www.theguardian.com/business/2024/jan/16/uk-pay-bank-of-england-interest-rates" target="_blank"> average earnings figures continue to grow</a>. In December, data published by the Office for National Statistics (ONS) showed that inflation rose unexpectedly to 4% while market analysts had been expecting a drop to 3.8% on an annualised basis.  </p><p>A <a rel="nofollow noopener" href="https://www.bnnbloomberg.ca/traders-see-fewer-boe-interest-rate-cuts-as-inflation-quickens-1.2022957" target="_blank">report by BNN Bloomberg</a> suggested that “money markets are now favoring four BOE quarter-point rate reductions and see just a one-in-three chance of a fifth in 2024, according to swaps tied to the central bank meetings.” </p><p>A <a rel="nofollow noopener" href="https://www.reuters.com/markets/europe/jpmorgan-now-expects-boe-start-cutting-interest-rates-august-2024-01-18/" target="_blank">J.P. Morgan report</a> regarding the UK’s economy suggested that the BoE could start slashing interest rates in August this year on the back of dropping inflation and optimism related to a soft landing. Economists at J.P. Morgan forecast a total of 75 basis points rate cuts by the end of 2024, adding that “the optics of even a brief episode of sub-target inflation is likely to place additional pressure for it (BoE) to start cutting this year.”</p><h2>Interest Rate Cuts And Trading With Admirals</h2><p>While the interest rate cut debate continues, some beginner traders may think that it would be a good time to build a trading strategy and take advantage of fluctuations observed in some financial instruments. However, beginner traders may not have the necessary level of knowledge to design and execute the strategies they want.  </p><p>Beginner traders could consider upgrading their trading knowledge to reduce the effect of lack of experience. This could be done by reading articles and how-to guides regarding trading, watching webinars in which experienced traders share valuable insights or even registering for educational courses that become available by brokers.  </p><p>Beginner traders may also learn how to use risk management tools. These tools help traders reduce their risks when executing their trading strategies. Risk management tools such as the stop loss order and the take profit order are available on the most popular platforms for free so beginner traders can take advantage of their benefits when used correctly.</p><h3>Trade on a Risk-Free Demo Account</h3><p><em>Are you interested in practising trading without risking your funds? A demo trading account from Admirals allows you to do just that, whilst trading in realistic market conditions. Click the banner below to open a demo account today:</em></p><p></p><div><div><span>Risk Free Demo Account</span><p>Register for a Free Online Demo Account and Master Your Trading Strategy</p><a target="_blank" href="https://admiralmarkets.com/start-trading/forex-demo">OPEN DEMO ACCOUNT</a></div><div><a target="_blank" href="https://admiralmarkets.com/start-trading/forex-demo"><a href="https://admiralmarkets.com/analytics/traders-blog/rate-cuts-debate-how-will-the-fed-ecb-and-boe-react"><picture class="lozad" data-iesrc="https://fxmedia.s3.amazonaws.com/img/uploads/6450d62272e5f1683019298.png" data- data- data-alt="Risk Free Demo Account" data-height="" data-width=""><source type="image/webp" media="(min-width: 640px)" srcset="https://dynamic-images.admiralmarkets.com/720x,webp/fxmedia.s3.amazonaws.com/img/uploads/6450d62272e5f1683019298.png"></source><source type="image/webp" media="(max-width: 639px)" srcset="https://dynamic-images.admiralmarkets.com/375x,webp/fxmedia.s3.amazonaws.com/img/uploads/6450d62272e5f1683019298.png"></source></picture></a></a></div></div><p><b>This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the <a href="https://admiralmarkets.com/risk-disclosure" target="_blank" rel="noopener">risks</a>.</b></p>