“The fight against inflation is not over yet.” Christine Lagarde, two days after the first rate cut since 2019 carried out by the ECB, extinguishes the easy enthusiasm and somehow freezes the hopes of those who were already taking a second rate cut for granted at the next meeting on 18 July. The number one of the Eurotower chooses the central bank's blog to explain in more detail how it intends to move in the coming months and to dispel any misunderstanding about Frankfurt's future moves, with the prospects not always clear due to the continuous tug-of-war between hawks and doves. However, everything will be clearer about the positions within the board when the minutes of the last meeting are published.
Meanwhile, Lagarde, despite reiterating the progress made, does not hide the pitfalls and uncertainties that still surround the future prospects of the economy and price trends in the Eurozone. For this reason, he states, «i interest rates will remain restrictive for as long as necessary to ensure stability on a lasting basis.”. The former French finance minister explains how we are on track to reach the coveted 2%, the Eurotower's reference target, by the end of the year. But, she warns, “there is still a long way to go” before inflation is finally beaten. And “it won't be an easy path – she adds – vigilance, commitment and perseverance are needed”. “In other words – you say clearly – we still have to keep our foot on the brake for a while, even if we are no longer pressed as we were in the past.”
The president of the ECB therefore indicates the three criteria on which the Eurotower's next monetary policy decisions will be based: «They will depend on three things: if inflation returns to our target in a timely manner, if price pressure on the economy will ease if our monetary policy proves effective in containing inflation». «These factors – he concludes – will determine when we can take our foot off the brake». At this point, perhaps, no longer July 18th but, if everything goes well, September 12th. But it's too early to tell. On Monday we will see how the markets will react, having closed the past week weak in the face of the ECB's caution, with the perception that the path to lower rates in the Eurozone could be longer than expected.
But in the next few days all attention will shift to the other side of the Atlantic, with the Fed due to make its decision on Wednesday. Barring any sensational surprises, rates will remain unchanged in this case, and it will be from Powell's words that the markets will try to understand when the season of cuts will start in the United States too. Probably, as many economists bet, on September 18th, therefore before the American elections on November 5th. It will be too soon to say whether there will be more than one Fed cut in 2024: experts appear divided on this. In the background is inflation which is more worrying in the US than in the Old Continent, which has recently started to rise again and with a rate of decline that appears slower than in the Eurozone. (HANDLE).