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Highlights
- The ECB has cut interest rates amid tame inflation numbers.
- The ECB cut rates by 25 basis points as investors eye stimulated European markets
- Investors are nursing optimism that the US Federal Reserve will mirror the ECB to cut rates.
The European Central Bank (ECB) has opted for interest rate cuts across the board as inflation indicators decelerate. Across the Atlantic, optimism is growing that the US FED will follow its European counterpart to slash interest rates.
European Central Bank Slashes Rates By 25bps
The Governing Council of the ECB has confirmed three key interest rate cuts by 25 basis points to stimulate the regional economy. According to a press release, the ECB notes that the decision to cut interest rates follows an updated assessment of available inflation data for the EU.
Per the data, the EU’s inflation hovers around the 2% mark in the short term, while long-term estimates point to similar conservative numbers. Furthermore, the ECB notes that analysts are forecasting a spike in GDP projections despite ongoing trade uncertainties.
Going forward, the ECB’s reduction of interest rates by 25 basis points will affect facilities relating to deposits, main refinancing operations, and marginal lending facilities. The 25 basis point reductions leave interest rates on the deposit facility at 2.00% while main refinancing and marginal lending facilities sit at 2.15% and 2.40%.
The ECB notes that it will maintain current interest rates since trade tensions from April have eased. EU and US representatives have agreed to open negotiations to reach a trade agreement after April’s skirmish that saw Donald Trump impose 50% tariffs on the region’s imports.
However, cryptocurrency prices did not rally after the announcement with Bitcoin down by nearly 2% and the broader crypto market capitalization shedding $30 billion over the last day.
Will The FED Announce Its Interest Rate Cuts?
Pressure is piling on the US to announce interest rate cuts after the European Central Bank’s move. For context, the ECB has cut interest rates nine times, but the Jerome Powell-led Federal Reserve is adopting a hard stance toward to issue.
The ECB’s reason for falling inflation figures as a key driver in its decision to cut rates may influence the US Fed to mirror its move. According to data from the Consumer Price Index (CPI), US inflation rates have fallen to 2.3%, their lowest level since 2021. Furthermore, US Core PPI data is signaling a cooling down of inflation metrics amid rising calls for the Fed to cut rates.
Apart from the ECB’s decision, a recent meeting between Powell and Trump is fuelling speculation for an incoming rate cut announcement. However, minutes from an FOMC meeting reveal that the Fed will take a cautious stance toward interest rate cuts, citing Trump’s tariff uncertainties.
Data from CME Fedwatch points to a 99% chance that the Fed will keep interest rates between 4.25% and 4.50%. Despite the buzz, Powell is not speaking on the economic outlook as the FOMC meeting inches closer.
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