Diverging Forecasts for ECB Rate Cuts Emerge
One day after the European Central Bank (ECB) held interest rates steady, Goldman Sachs and JPMorgan Chase adjusted their forecasts regarding further interest rate reductions by the ECB. These adjustments stem from the perceived resilience of the European economy, coupled with increased optimism regarding a potential trade agreement between the European Union (EU) and the United States.
In a report issued on Thursday, July 24th, Goldman Sachs stated that it no longer anticipates any rate cuts from the ECB this year. JPMorgan Chase, meanwhile, pushed back its rate cut forecast from September to October.
ECB's Decision to Hold Rates Steady
Earlier this week, the ECB kept its key policy rate unchanged at 2%. This decision marked the first pause after a series of eight consecutive rate cuts that began in June 2024.
ECB President Christine Lagarde stated in a press conference that the bank is in a "wait and see" mode. She added that the economy is now in a "good place."
Goldman Sachs' Analysis of Lagarde's Statement
Analysts at Goldman Sachs indicated that Lagarde's comments suggest that the "Governing Council is likely to keep rates on hold unless there is a material deterioration in the outlook."
EU-US Trade Negotiations
The outcome of trade negotiations between the EU and the US remains uncertain. However, two diplomats with inside knowledge have stated that a deal including a broad-based 15% tariff on EU goods is likely.
Earlier this month, former US President Donald Trump threatened to impose 30% tariffs on EU imports beginning on August 1st.
Differing Views from Other Financial Institutions
On the other hand, Bank of America, Barclays, Citigroup, Deutsche Bank, and Morgan Stanley reaffirmed their expectations for a September rate cut, although some of these banks cautioned that their forecasts face risks.
Morgan Stanley Warns of Risks
Analysts at Morgan Stanley stated in a report that "the risks to that view (a September rate cut) have clearly increased." They added, "If the data are stronger than we expect, we think the ECB could extend the current pause into December."
Market Expectations for Rate Cuts
Money markets indicate that traders are uncertain whether the ECB will cut rates again this year. Market pricing shows only about a 30% chance of a rate cut from the current 2% level by year-end. This reflects a level of uncertainty surrounding the economic and political outlook for the Eurozone.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
KO
