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Friday, June 21, 2024

Central banks are possibly signaling rate cuts

Central Banks Are Pivoting After Rate Hikes

After a period of aggressive rate hikes aimed at curbing inflation, central banks worldwide are now signaling a pivot towards easing monetary policies. Central banks’ decision to pivot from rate hikes to a more accommodative stance reflects a broad-based recalibration of monetary policy. This shift is influenced by slowing inflation, economic growth considerations, and the impact of previous rate increases on borrowing costs and financial markets.

The start of Rate Cuts

The approach to reducing rates is expected to differ from monetary policy during the rate hike cycle. This transition will likely be characterized by a more measured and deliberate pace, ensuring that monetary easing supports economic growth without reigniting inflationary pressures​​.

Nearly all central banks within the ‘Fitch20’ economies are projected to cut rates in 2024, signifying a broad but not specific pivot to policy rate cuts. The anticipated rate cuts are expected to span a wide geographical area, showing the global nature of the economic challenges. 

While the scope of these cuts is predicted to be significant, their magnitude and speed are likely to be restrained, a cautious approach to unwinding the aggressive rate hikes implemented during the preceding period​​.

The FOMC’s recent stance indicates a continued commitment to maintaining policy rates within the current range of 5.25% to 5.5%, focusing on managing the pace of quantitative tightening. This approach suggests a strategic pivot to stabilize economic conditions while preparing for a potential easing of rates by midyear​​.

Importance for the Global Economy

The pivot by central banks from rate hikes to a more accommodative monetary policy stance has implications for the global economy. This shift will likely influence everything from borrowing costs, and investment flows to exchange rates and inflation dynamics.

Central banks aim to support economic growth by easing monetary conditions, reducing borrowing costs, and encouraging investment. This strategy is essential as economies seek to rebound from the disruptions caused by the COVID-19 pandemic.

A challenge for central banks in this pivot is effectively managing inflation expectations. While easing monetary policy can bolster economic growth, it also risks reigniting inflationary pressures. 

Therefore, central banks must calibrate their actions carefully to ensure that inflation remains within target ranges, preserving consumers’ purchasing power and the stability of financial markets.

Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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