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Europe May Cut Interest Rates Before America

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London, March 30, 2024 – According to Robert Holzmann, governor of the Austrian National Bank (OeNB) and member of the Governing Council of the European Central Bank (ECB), the eurozone may start cutting interest rates sooner than the US.

Different Growth and Inflation Rates

Holzmann explained in an interview with the Austrian newspaper Kronen Zeitung on Saturday that the economy in Europe is growing more slowly than in the US. This could lead to a sharper decline in inflation in the eurozone compared to the US.

The Important Role of Wages

Holzmann emphasized that wage developments play an important role in inflation dynamics. According to him, lower wage agreements in the eurozone should lead to lower price growth, which would allow the ECB to reach its long-term inflation target of 2% sooner.

The Situation in the US

In the US, wage growth has stabilized at 5% and inflation is “significantly above 3%”, Holzmann said. He added that recent statements by US Federal Reserve Chairman Jerome Powell cast doubt on a rate cut in June.

Divergence of Monetary Policy

Holzmann suggests that monetary policy in the eurozone and the US could diverge in 2024. While the ECB could be moving towards cutting interest rates, the Fed may remain in tightening mode. This divergence could have an impact on exchange rates and global financial markets.

Conclusion

Different rates of economic growth, inflation, and wage developments in the eurozone and the US could lead to a divergence in monetary policy in 2024. The ECB could be approaching a rate cut, while the Fed may remain in tightening mode. This divergence could have an impact on the global economy and financial markets.


Sources:

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