ECB, BOE Shouldn't Wait for Fed to Cut Interest Rates
Policymakers in the euro zone and Britain need to mind their own economies.
Who’ll be first to cut?
Photographer: FPG/Archive Photos via Getty Images
With the US economy continuing to dodge recession, the Federal Reserve appears to be in no rush to cut interest rates. But with European economies displaying worrying signs of fatigue from monetary tightening, that's a luxury the European Central Bank and the Bank of England don’t have. They shouldn’t wait for the Fed to make the first move.
The US is relaxed with immaculate disinflation and rip-roaring fourth-quarter growth. A blowout January payrolls report extended the trend. The S&P 500 Index is testing all-time highs so it's little wonder the dollar index has strengthened 3% this year. US Treasury yields have risen around 20 basis points across the curve this year, and even if the first rate cut isn't first-quarter business, it'll probably happen before summer. Real rates, after adjusting for inflation, are running at between 2% and 3%, which is highly restrictive. This implies 75 basis points of cuts are required just to bring the US official interest rate back to neutral.