Confirmed Rate Cut by Fed's Powell This Year, What About Europe?... Interest Rate Decision Today

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), reaffirmed a cautious approach to interest rate cuts within the year, shifting market attention to the European Central Bank (ECB), which is set to announce its monetary policy decision on the 7th (local time). With a rate hold expected, the key focus is on what hints ECB President Christine Lagarde will provide regarding future monetary policy moves. The market is showing confirmed expectations for a rate cut in June.

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According to economic media outlets such as CNBC, the ECB is expected to hold its policy rate steady for the fourth consecutive time at its monetary policy meeting on the day. Having raised rates ten consecutive times earlier to combat inflation, the ECB has maintained its key interest rate at 4.5%, the deposit rate at 4.0%, and the marginal lending rate at 4.75% since October last year.

With a rate hold highly likely, the current market interest lies not in the rate decision itself but in President Lagarde’s remarks and the updated economic outlook. Lagarde is scheduled to hold a press conference immediately after the meeting to explain the rationale behind the policy decision and provide assessments of inflation and the economy. Investors are expected to gauge the future direction of monetary policy through this. The critical questions are when and by how much rate cuts will begin.

Dirk Schumacher, an analyst at Natixis Securities in France, noted in an investor note that "unlike previous meetings, the timing of rate cuts can now be discussed," emphasizing the importance of whether such discussions took place at this meeting. He added, "Inflation could be revised downward in the updated outlook, which strengthens the signal that the ECB is approaching rate cuts." Previously, in the economic outlook published in December last year, the ECB projected a growth rate of 0.8% and an inflation forecast of 2.7% for this year.

At the press conference, President Lagarde is expected to reaffirm a cautious monetary policy stance, emphasizing ongoing concerns about high service inflation. The Eurozone’s consumer price index (CPI) rose 2.6% in February, slowing compared to the previous month but exceeding market expectations. Notably, the increase in service prices approached 4%. Mark Wall, an analyst at Deutsche Bank, warned, "There was a surprising upward pressure confirmed in the service sector," adding, "The ECB will be more cautious in future monetary policy decisions." Lagarde herself acknowledged a disinflation trend at last month’s European Parliament plenary session but diagnosed that wage pressures would remain a major driver of inflation for the coming quarters.

With early rate cut expectations fading, a June cut has emerged as the most likely scenario in the market. A recent Reuters survey showed that two-thirds of economists expect a rate cut in June. Holger Schmieding, Chief Economist at German investment bank Berenberg, said, "The ECB will take a cautious approach," and forecast a 0.25 percentage point cut in June. Michael Field, European market strategist at Morningstar, also assessed, "The ECB is at a point where it must balance between a rebound in inflation and concerns about a prolonged recession," adding, "Considering this, a June cut appears to be a reasonable compromise."

Peter Kazimir, ECB board member and Governor of the National Bank of Slovakia, previously stated, "There is no reason to rush rate cuts," adding, "June is the preferred timing." He further commented, "April would surprise me, and March is a no-go."

This content was produced with the assistance of AI translation services.