Investors adjust 2024 monetary easing outlooks for Fed, ECB

(MENAFN) Investors are adjusting their expectations for the extent of monetary easing anticipated from the Federal Reserve and the European Central bank (ECB) in 2024. Approximately 60 percent of traders, according to CME Group's FeedWatch service, are now expecting a decline in interest rates by March 2024, reflecting a growing belief among policymakers that they may have sufficiently tightened policies to steer inflation back to target rates.

For the Federal Reserve, projections suggest that the central bank may initiate the first steps to cut rates in May 2024, with an anticipated reduction of 125 basis points. The upcoming Federal Reserve meeting on December 12 and 13 is expected to leave interest rates unchanged, reinforcing the market sentiment that the U.S. central bank has concluded its cycle of interest rate hikes. While Federal Reserve Chairman Jerome Powell has cautioned against premature expectations of rate cuts, some market analysts interpret his use of the term "balanced" as an indication that the Fed is content with the current trajectory and has no immediate plans for further rate increases. This perspective aligns with the market sentiment that the Fed has completed its interest rate hike cycle, having witnessed a substantial increase from near-zero levels in March 2022 to over 5 percent by July 2023.

Turning to the European Central Bank, markets are pricing in the possibility of six interest rate cuts, each by a quarter of a percentage point, in 2024. This move would reduce the key interest rate by 150 basis points to 2.5 percent. The likelihood of the monetary easing cycle commencing in the first quarter of 2024 has increased to approximately 90 percent, a scenario that appeared unlikely just three weeks ago. While policymakers express ongoing concerns about inflation, they also acknowledge that there may be no necessity to further raise interest rates beyond 4 percent. The European Central Bank's recent decision to raise interest rates by a quarter of a percentage point to 4 percent, marking the tenth consecutive increase since July 2022, aimed at curbing inflation to its highest level since the introduction of the euro in 1999. However, experts suggested that this increase might be the last for the time being.

If market predictions materialize, the ECB could be the first among major central banks to implement interest rate cuts in 2024, initiating a potentially more aggressive easing cycle. The evolving sentiments in the financial markets underscore the delicate balance central banks are navigating as they address inflation concerns while managing economic stability.



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