This week, we’ve heard from central banks about their respective views around interest rates. The markets reacted adversely before settling down (that is until Israel fired missiles into Iran in retaliation). It’s therefore prudent to understand what was said and its ramifications. It certainly appears as though the European Central Bank (ECB) or the Bank of England (BoE) will now cut rates before the Federal Reserve (Fed) in the US. A very different rhetoric to the start of the year.
The main issue around interest rate cuts is better than expected growth. A good thing on the one hand, but it is not good for those borrowing and for liquidity across global markets.
Then we have elections. Here in the UK, we are expecting tax cuts ahead of the election, but the International Monetary Fund (IMF) has ‘sent a warning shot across the bow’ to the Conservative government stating that this will increase risks and elevate the imbalances between spending and revenues. This issue will land in the lap of a Labour government, no doubt!
However, globally, the indications are that we are likely to see an economic boom which is good for many assets when investing. A bi-product is that at the same time, it could be that interest rates remain elevated for longer. Of course, we shouldn’t see the world through the lens of the UK alone as countries like India are booming.
Here is this week’s agenda:
- Inflation hasn’t moved quickly enough in the US
- The ECB is very close to rate cuts
- Strong evidence of reduced price pressures in the UK
- The IMF urges the UK to curb rising debt
- Global economic growth to improve
- Expected economic boom
- India’s growth expectations are still exciting
- China used to be the success story
- Summary
Inflation hasn’t moved quickly enough in the US
The Chair of the Federal Reserve (Fed) commented this week that while inflation continues to drift lower, it hasn’t moved quickly enough, and rates will stay at their 23-year high for as long as needed.
Continues…
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