Former Bank of England DeAnne Julius says the Fed will cut interest rates before the ECB | Wilnesh News

A former member of the Bank of England said the Federal Reserve may cut interest rates before the European Central Bank, going against current market expectations.

“I suspect the Fed will be the first to actually cut interest rates,” DeAnne Julius, a founding member of the Bank of England’s monetary policy committee, told CNBC on Tuesday.

Against the backdrop of sharp declines in inflation in major economies, investors are paying close attention to the central bank’s actions. Expectations of rate cuts have boosted stocks since late 2023.

So far, Switzerland was the first major economy to cut interest rates in late March.

According to LSEG data, market participants currently predict a 92.8% chance that the European Central Bank will cut interest rates by 4% in June, a record high. The same database shows that the probability of the Fed cutting interest rates at its June meeting is only 53.5%.

Julius explained that her forecast was based on the Fed’s dual mandate of taking into account both inflation and employment in the U.S. economy. The latest employment data shows that the U.S. labor market is active and inflation has declined, but is still above the Federal Reserve’s 2% target.

“Frankly, I think things are moving a little faster in the United States. The labor market is adjusting faster,” she said.

Strong U.S. economic data led market participants to lower expectations for an interest rate cut by the Federal Reserve in 2024. At the beginning of the year, they expected about six rate cuts in 2024, but now they expect the Fed to cut interest rates six times in 2024. Only about three such reductions are predicted.

“The labor market is adjusting faster. I don’t think the Fed will do much, but I suspect there will probably be a little bit of movement somewhere in the second half of the year,” Julius added. “That will create a little bit of room, maybe even Putting a little bit of pressure on the Bank of England … of course the Bank of England’s economy is closely linked to the US economy and the European economy.”

Her comments came ahead of an ECB meeting on Thursday. While the central bank is unlikely to change interest rates at this meeting, markets are looking for clues as to whether Christine Lagarde’s agency will be able to cut borrowing costs in June.

“It’s going to take a while for the ECB to reach a consensus. Because what’s happening is that inflation in some countries is still too high and inflation in other countries is below the 2% target. So, you know, their inflation rate is still too high.” The rate of expansion is not really high. “Part of the economic analysis is the politics and internal weights of different economies and the different politics of different economies,” Julius said.

“So Christine Lagarde has a real job on her hands. I think she’s doing a great job. But it does mean she has to move cautiously toward something that might be agreed upon, and I don’t think they’re close to that yet. Consensus.” There is no consensus yet on a rate cut. “

So far, Lagarde has stressed that policymakers will consider a rate cut at the June meeting, but she has hinted at an uncertain path beyond that. Notably, the June meeting will be the first for which spring salary negotiation data will be available.