Officials express cautious optimism about reaching inflation targets
The conversation around global monetary policy is shifting, with key indicators pointing towards an impending era of central bank rate reductions, according to Kiwibank.
As US Federal Reserve chair Jerome Powell and ECB president Christine Lagarde expressed cautious optimism about reaching inflation targets, the financial world is closely monitoring these developments for signs of policy changes.
Central banks nearing a pivot
“We are waiting to become more confident that inflation is moving sustainably to 2%,” Powell said, signaling an openness to easing monetary restrictions to avoid economic downturns.
Similarly, Lagarde noted progress towards inflation targets but admitted a lack of sufficient confidence to warrant immediate action.
These statements, according to Jarrod Kerr (pictured above), Kiwibank chief economist, underlined a growing belief that 2024 could mark the beginning of widespread central bank rate cuts, though officials remained wary of acting prematurely.
ECB holds steady, eyes future cuts
At its latest policy meeting, ECB maintained its cash rate at 4%, with Lagarde hinting at a possible timeline for rate adjustments.
“We will know a little more in April but will know a lot more in June,” she said, sparking speculation about rate cuts as early as mid-year. This cautious optimism reflects a confidence in cooling inflation, despite the desire for further confirming data.
US jobs market and Fed’s rate outlook
The US economy’s recent jobs report delivered mixed signals, with a higher-than-expected job addition in February but an increase in the unemployment rate, the first rise in four months.
Despite these mixed outcomes, the resilience of the US jobs market and indicators of slowing wage growth align with the Fed’s objectives, potentially setting the stage for rate cuts later in the year, Kerr said.
Japan considers ending negative interest rates
In contrast to the general trend of anticipated rate cuts, Japan may soon depart from its long-standing negative interest rate policy, driven by significant wage growth expectations.
The announcement of a 5.85% average wage increase demand by Japan’s largest trade union, Rengo, has fueled speculation of an imminent policy shift by the Bank of Japan, especially as major firms’ wage negotiations conclude, Kiwibank reported.
Recently, the Reserve Bank of New Zealand kept the OCR steady at 5.5%, and lowered the OCR track, in a move described by Kerr as “a sheep in wolves’ clothing.”
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