The Federal Reserve and the European Central Bank are gearing up for a 'major' interest rate cut this year, says the Bank for International Settlements (BIS) chief-as, reported by CNBC.
BIS General Manager Agustín Carstens emphasized that major central banks have made impressive strides in addressing inflation. He suggested that this progress indicates an upcoming change towards a more relaxed or accommodating monetary policy. Carstens expects this shift to lead to considerable advancements, especially in the year's later months.
For context, BIS acts both as a bank and a forum where national central banks, like the European Central Bank, convene. This means it has a deep understanding of its monetary strategies. However, it does not influence policymakers' decisions, particularly the Federal Reserve.
European Central Bank Warned by BIS for Cutting Interest Rates
However, going against inflationary pressure is not easy. Carstens warned that the last part of reducing inflation could be tough. Central bankers need to steer through this phase until they reach their goals carefully to steer through this phase until they reach their goals carefully.
"Central bankers have to be very observant about the path of disinflation, and they have to keep going until the job is fully done."
VCPost previously reported that even the Federal Reserve is taking a precautionary approach, disregarding time constraints.
Experts watching the markets are also closely monitoring interest rate changes. They expect that central banks might start relaxing their monetary policies, which would be a relief after raising rates for a while to slow down inflation.
While the European Central Bank maintained interest rates during its March meeting, it hinted at a potential rate cut in June, contingent on economic data. Similarly, the Federal Reserve and the Bank of England are expected to shed light on their interest rate plans in upcoming policy meetings.
Following unexpected US inflation data, economists have adjusted their predictions, envisioning three Fed-rate cuts from June onwards. Analysts also anticipate rate reductions by the Bank of England, with projections suggesting as many as five cuts starting from June.
Conversely, the Bank of Japan is anticipated to increase interest rates, marking a significant departure from its long-standing negative rate policy.
The Implications of Federal Reserve and European Central Banks' Decision To Cut Interest Rates
Per VCPost, the United States has been on high alert since the start of the year, with Wall Street worried that it may become as worse as the late 1900s.
The Federal Reserve then regularly exchanges information and communicates with other central banks to stay informed about global economic developments and monetary policy actions. Then comes central banks, like European Central Banks, which closely monitor inflation levels and adjust interest rates accordingly to maintain price stability.
When inflation exceeds the central bank's target, it may raise interest rates to cool down the economy and reduce inflationary pressures.
Join the Conversation