Economists anticipate rate cuts amid global inflation challenges
(MENAFN) Amid ongoing global challenges with high or fluctuating inflation, economists anticipate interest rate cuts and a shift towards more accommodative monetary policies in the near future. Major central banks, including the European Central bank (ECB) and the Bank of England (BoE), have recently reduced their policy rates. The expected rate cut by the US Federal Reserve is anticipated to influence other central banks to follow suit.
Central banks in Canada, Switzerland, and New Zealand have also made slight reductions in their rates, while Australia has opted to maintain its current rate levels. According to Max Gillman, a professor of economic history at the University of Missouri-St. Louis, the Federal Reserve is highly likely to lower its benchmark rate from the current 5.4 percent, a level that has been in place since July 2023. Gillman noted that annual inflation in the US, which had been below 4 percent for some time and recently dropped below 3 percent, reflects a positive real interest rate of +2.5 percent after experiencing negative real interest rates for the majority of the past two decades.
The annual inflation rate, which peaked at 9.1 percent in June 2022, has been gradually decreasing and fell to 2.9 percent by July 2024, even lower than market expectations of 3 percent. The Federal Reserve had been increasing its benchmark interest rate from 0.25 percent in March 2022 to 5.5 percent by July 2023, but it has since held the rate steady over the past eight monetary policy meetings. Gillman suggests that a rate cut by the Fed would likely prompt other central banks globally to reduce their interest rates as well.
The ECB had raised its policy rate from 0 percent to 4.5 percent between July 2022 and September 2023 before recently lowering it by 25 basis points. Similarly, the BoE increased its rate from 0.1 percent to 5.25 percent between December 2021 and August 2023, and after maintaining it for seven meetings, it lowered the rate to 5 percent in August. Gillman expects that interest rates will continue to decrease both within the Fed's Interest Rate on Reserve Balances (IORB) and internationally, reflecting a broader trend towards easing monetary policies.
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