The American Fed has recently been operating in an environment of limited availability of macroeconomic data, due to… government shutdown in the US, most data is not published at all. During the press conference, Chairman Jerome Powell signaled that there is a difference of opinion within the FOMC on cutting interest rates at future meetings, and the next move in December is not certain – Citi Handlowy economists wrote in their Monday commentary.
Powell described the current level of rates as moderately restrictive, but future decisions will depend on incoming data. If the work of government units resumes by December, the Fed should receive monthly labor market reports for September, October and November before this year's last meeting.
In the case of the ECB, members of the Governing Council have been signaling for some time that they see no need to rush in the event of any further interest rate cuts. According to President Christine Lagarde, the October decision to leave rates unchanged was unanimous. Regarding future monetary policy decisions, the ECB President suggested that the Bank is currently in a good place, but not permanently, and is ready to do whatever is necessary to remain in a good place.
Consumer inflation is at a different level in both economic areas. In the euro zone, inflation dropped to 2.1% in October. year to year from 2.2 percent in September. The price dynamics is higher in the USA: last month it was 3%. year to year (compared to 3.1% in September).
“In our opinion, both the Fed and the ECB may make further moves to ease monetary policy. The space seems to be larger on the side of the American authorities than in the euro zone. We assume that interest rates in the US will be reduced by another 0.75 percentage points. In the euro zone, the scope for further steps seems more limited and one or two more moves of 0.25 percentage points are possible. down before reaching the bottom of the current cycle. However, such a scenario would require weaker macroeconomic data,” Citi experts added.
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“Valuations based on quotations from the derivatives market indicate that a change in rates in the US by 0.75 percentage points. next year is probablehowever, the chances for a move decreased slightly in December this year. In turn, in the case of the ECB, the market is pricing in approximately half of one deposit rate reduction in the horizon extending to the first half of 2026,” said Citi Handlowy economists.
