Financial markets have finally caught up with reality, tipping widespread official interest rates across advanced economies from late this year.
The next chart from Justin Fabo at Antipodean Macro tells the tale and shows that markets are currently tipping a more gradual monetary policy easing in Australia than elsewhere, which we at MB disagree with:
The case for rate cuts is strong.
Inflation is falling across the board, most advanced economies are experiencing either technical or per capita recessions, and China is now exporting goods deflation to the world.
These factors, combined, mean that most central banks are likely to commence their easing cycles in the second half of the year.
AMP chief economist Shane Oliver gave a good summary of the situation in his latest Weekly Market Update.
Oliver noted that “major central banks still waiting for more confidence regarding the fall in inflation, but they are getting close to cutting”.
“The BoC is still a bit more concerned about inflation, noting it’s still too early to consider rate cuts”, Oliver wrote.
“But the message from the ECB was clearly dovish with downwards revisions to its growth and inflation forecasts (with inflation now forecast to be 2% next year) and President Lagarde indicating its watching wages, profits and services inflation for more confidence but noting there is a definite slowdown in inflation, and it will have a lot more data in June suggesting its allowing for a June rate cut”.
“Fed Chair Powell in congressional testimony across two days seemed confident in a soft landing, saw disinflation as remaining on track and while he said the Fed didn’t want to rush into rate cuts, he also said that the Fed is “not far from” having enough confidence to start cutting rates and that rate cuts “can and will begin” this year”.
“Our assessment remains that the Fed and ECB will start to cut from around June, with the BoC cutting either June or July”, Oliver said.
Rate cuts are now only a matter of time.
