ECB cuts interest rates as inflation fight reaches a turning point

The European Central Bank has cut interest rates for the first time in five years, a sign of significant progress in the global fight to subdue the highest inflation since the early 1980s, Report informs referring to The Washington Post.

The ECB, as expected, became the first major central bank to lower borrowing costs, cutting its main policy rate by one-quarter of a percentage point. Annual inflation in May was 2.6 percent, down from a peak of 10.6 percent in October 2022.

“It’s always significant when the first major central bank starts cutting rates. We’ve seen it from some of the smaller ones in emerging markets, but it is sort of a milestone when you get one of the big boys moving,” said Eric Winograd, director of developed market economic research for AllianceBernstein. “It is a foreshadowing of what we expect from other central banks.”

Indeed, investors remain anxious for the Federal Reserve to join the parade. As the year began, markets expected the Fed to lower rates seven times in 2024. But inflation, while down significantly from its mid-2022 peak, remains higher than the Fed’s 2 percent target for price stability.

Almost no one expects the Fed to cut when its policymaking committee meets June 12. But there is a 70 percent chance of a Fed cut in September, according to CME FedWatch, which tracks investor bets in the futures market.