Interest Rates Remain Unchanged in Europe, America, and the United Kingdom

The European Central Bank

On the 7th of March 2024 the European Central Bank (ECB) kept interest rates on hold for the fourth meeting in succession, the deposit rate of 4% remaining unchanged. The consensus coming out of the Governing Council is that keeping borrowing costs unchanged for a sufficiently long period means that their target inflation number of 2% will be more easily accessible. Indeed, the President of the ECB Christine Lagarde advised that inflation is definitely slowing down but remains sceptical of lowering interest rates at this time. 

President Lagarde went on to say that further data in the coming months, especially by June, should give the ECB a clearer picture regarding a drop in interest rates. Like the Bank of England and the Federal Reserve, the ECB is considering when to announce that inflation is beaten and start the process of unwinding their unprecedented monetary tightening policy. However, like their peers the Federal Reserve and the Bank of England and despite Presidents Lagarde’s coyness on a June 2024 interest rate cut, the indications from the ECB are that a June interest rate cut is in the offing, and as a result money markets are indicating three/four interest rate cuts by the end of the 2024.

The Federal Reserve

On the 20th of March 2024 the Federal Reserve’s FOMC (Federal Open Market Committee) announced that they are holding the benchmark federal funds rate steady at 5.25% to 5.50% for the fifth consecutive meeting. However, officials signalled that they remain confident that rates will be cut in 2024 for the first time since March 2020 and they also revised downward their December 2023 forecast of four interest rate reductions in 2025 to three interest rate reductions. Whilst the Federal Reserve has seen inflation fall from a high of 9.1% in July 2022, the figure sadly ticked up slightly in February 2024 due to the cost of clothes, car insurance, airline fares, gas, rent and shelters. 

Post-meeting statements/comments were nearly identical to those made at the post meeting interviews in January 2024, being that rate cuts will not be made until the Federal Reserve is more confident that inflation is moving towards the 2% target. Experts have predicted that interest rate will be cut three times this year but there are doubts as recent data shows inflation is slowing and remains at 3.2%, meanwhile financial analysts and traders are betting that the first interest rate cut will be announced this June. Chairman Jerome Powell reiterated his vow to keep interest rate elevated as the fight against inflation continues. 

The Bank of England

The Bank of England’s MPC (Monetary Policy Committee) on the 21st of March 2024, maintained Bank Rate at 5.25% by a majority vote of 8 to 1 as official data released showed that inflation had receded to 3.4%, its lowest level in over two years. However, whilst headline inflation has been receding rapidly, the Bank of England is very aware of prices in the service sector and wages where price growth is still in excess of 6%. The Governor of the Bank of England Andrew Bailey was quoted as saying “Britain’s economy is moving  towards the point where the Bank of England can start cutting interest rates”. Interestingly within the 8 to 1 majority and for the first time since September 2021 none of the MPC members voted for a rate hike, and two hawks (Jonathon Haskel and Catherine Mann) became part of the no-change majority with Swati Dhingra being the one vote for a cut in interest rates. 

When asked the question ‘Were investors correct to price-in two to three rate cuts in 2024?’, Andrew Bailey replied “It is reasonable for markets to take that view”, while stressing that he would not confirm or endorse the size or the timing of the cuts. As a result experts within the financial markets have raised their bets for a first cut in June 2024 as Governor Bailey confirmed that the UK was on the way to winning the battle against inflation. Interestingly, Chancellor of the Exchequer Jeremy Hunt has alluded to an October 2024 general election, so in order to avoid criticisms of bias towards the government and to assert their independence, any interest rate cuts will have to be made sooner rather than later.