Time to cut interest rates

Erste Bank Research Team Erste Bank

ECB and US Fed get to work

Both the eurozone and the USA are set for a series of interest rate cuts in the fall. Although the latest inflation data has not yet given the all-clear, overall it points in the right direction. Other economic data also supports expectations for interest rate cuts. In the eurozone, the economy is recovering slowly, while in the USA there are increasing signs of a noticeable slowdown in the labor market. As a result, the decision-making guidelines for the two central banks have become clearer. We expect both the ECB and the US Fed to cut interest rates by a total of 75 basis points by the end of the year. Further rate cuts should then follow in 2025.

A new Donald Trump presidency poses risks. The announcement to raise US tariffs would lead to trade conflicts and thus to uncertainty globally. In the US it would increase inflation risks. The extent of this will probably also depend on the majorities that emerge in both chambers of the US Congress after the elections. There are many possible variations in the distribution of power after the US elections and therefore the consequences. So far, the markets have been calm, but the potential for reactions is certainly there.

As always, in this Interest Rate Outlook we present our expectations for both central banks, the ECB and the US Fed, as well as for the respective government bond markets in the eurozone and the US in compact form. We also focus on two economic policy issues that could come under the spotlight in the wake of the US elections: The future trade policy under Donald Trump and the US federal budget.

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Erste Bank Research Team

Erste Bank

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