ANZ Bank economists are projecting a potential interest rate cut by the Federal Reserve in July, aligning with their forecast.
June is the most likely time the ECB will start cutting
Subject to progress throughout spring, we anticipate the European Central Bank (ECB) will likely commence easing measures in June, while we have earmarked July for the Federal Reserve (Fed) to potentially follow suit.
Given the structural tightness of labor markets, the presence of positive real wage growth, and expansionary fiscal policies, there appears to be scant justification for a reversion to the zero lower bound or negative interest rates during the forthcoming easing cycle.
We do not foresee the Federal Open Market Committee (FOMC) embarking on a conventional rate-cutting cycle. Historically, such cycles have seen an average peak-to-trough reduction of 500 basis points over the past four decades. Instead, we anticipate a more moderate trajectory with a peak-to-trough reduction of 200 basis points.
As for the ECB, buoyant employment levels and an economic renaissance are expected to deter a return to negative real interest rates. Our projections anticipate a total reduction of 200 basis points by the ECB, resulting in the main policy corridor settling at 2.0-2.5%.
