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The Federal Reserve and ECB will see inflation moderate enough to cut interest rates in middle quarters of this year with the global economy seeing improved prospects for a soft landing, the OECD said Monday.
"Scope exists to start lowering nominal policy rates provided inflation continues to ease, with policy rate reductions beginning in the United States and the euro area by the second and third quarters of 2024 respectively, but the policy stance should remain restrictive for some time to come," according to the Paris-based group's updated Outlook report.
Global economic growth advances around a sub-par 3% this year and next but is still proving more resilient than the OECD thought, while 2024 inflation forecasts were cut by 0.6pp to 2.2% in the U.S. and by 0.3pp in the euro area to 2.6%. Inflation is projected to be back to target in most G20 countries by the end of 2025.
“Unemployment rates have generally remained low by historical standards in most countries while inflation has declined, raising the chances of a so-called 'soft landing,’” the OECD said. Risks to the outlook are more two-sided than in recent years with inflation potentially boosted by global conflicts or slowed by the lagged effect of past interest-rate hikes.
Other highlights:
- "Annual GDP growth in the United States is projected to remain supported by household spending and strong labour market conditions, but moderate to 2.1% in 2024 and 1.7% in 2025. Euro area GDP growth is projected to be 0.6% in 2024 and 1.3% in 2025, with activity held back by tight credit conditions in the near term before picking up as real incomes strengthen."
- "Growth in China is expected to ease to 4.7% in 2024 and 4.2% in 2025, despite additional policy stimulus, reflecting subdued consumer demand, high debt and the weak property market."
- "In Japan, by contrast, a gradual increase in policy interest rates is warranted over the next two years provided inflation settles at 2%, as projected. Nevertheless, the monetary policy stance is expected to remain accommodative for some time, with negative real interest rates persisting until the end of 2025."
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.