MNI: Gradual Fed And ECB Rate Cuts Seen From Q3 By OECD
Monetary policy needs to be restrictive for some time even as rates decline.
The Federal Reserve and ECB will cut interest rates in the third quarter of 2024 according to the OECD's new forecast Thursday and the pace will be slow given the need to curb stubborn inflation.
Global economic growth will remain around a substandard 3% this year and next, the Paris-based group said. Most major economies will see inflation return to their targets by the end of next year, up from about one-third now, though there are upside risks from geopolitical conflicts and services costs, the report said. "The `last mile' of central banks’ disinflation efforts could still prove to be slower and more difficult than the progress made to date," it said.
Other highlights:
- "In the United States, reductions in the federal funds rate are projected to begin in the third quarter of 2024, with rates being lowered to 3.75-4% by the end of 2025."
- "In the euro area, policy rate reductions are also projected to begin in the third quarter of 2024, with the deposit facility rate easing to 2.5% by the end of 2025. The decline in Eurosystem bond holdings is expected to gather speed, with no reinvestment of Asset Purchase Programme redemptions and a gradual phase-out of reinvestment of maturing Pandemic Emergency Purchase Programme securities over the second half of 2024."
- "In Japan, the policy rate is projected to increase gradually to 0.75% by the end of 2025, as core inflation stabilises around 2% and a positive output gap develops."
- "Reductions in policy rates are projected to begin in the second half of 2024 in Australia, Canada, Korea and the United Kingdom."
- "GDP growth in China is projected to slow only modestly to 4.9% in 2024 and 4.5% in 2025, despite the drag from the ongoing adjustment in the real estate sector. Growth is projected to be buoyed by supportive macroeconomic policies, including a sizeable fiscal stimulus in 2024 and infrastructure investment, and strengthening external demand."
- "Nominal policy rate reductions are projected to continue in Brazil as inflation moderates. In Mexico, policy rate cuts are expected to gather pace from the second half of 2024 as headline and core inflation converge to 3%, the midpoint of the target band."
- "The transmission of monetary policy tightening to credit conditions may be approaching its end in most advanced economies."
Source: OECD