Central Banks signal possible rate cuts in Spring

This week falling inflation and positive updates from central banks helped generate an optimistic mood. Equities have done well so far this year, but bonds have struggled due to the tension between central banks and markets’ assumptions about rate cuts. Investors have been forced to readjust as inflation remained sticky and central banks appeared reluctant to move too early. However, positive inflation updates and signs that jobs markets are cooling, plus signs that apparently insatiable US consumer demand is slowing have caused a big shift in central bank messaging.

Members of the ECB have been noticeably more upbeat about rate cuts, while Bank of England governor Andrew Bailey talked of the need to be forward looking, and said inflation doesn’t need to be back to target before acting. In the US, Jerome Powell was similarly optimistic about progress on inflation and investors and central banks appear to be settling on late spring as the date for the first rate cuts. There is still plenty of scope for disappointment but markets are enjoying the outbreak of positivity as bonds have been able to join the rally.

For the following stories, please click on this link*

• Rates: USA and UK leave rates unchanged for now
• Rates: Japan and Switzerland address different inflation issues
• Retail: Signs that USA consumer demand is starting to cool

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