Tom Fairless and William Boston of The Wall Street Journal report the record run on rate increases by the European Central Bank has ended at ten on fears of recession. They write:
The European Central Bank held interest rates steady, ending a historic run of 10 consecutive rate increases as Europe’s currency union teeters on the brink of recession and uncertainty rises around the global economy.
Major central banks including the Federal Reserve have paused interest-rate increases after a rapid series of hikes as inflation eases from last year’s multidecade highs. Now investors are watching for signs that policy makers will pivot and start to reduce rates to support economic growth that is faltering outside the U.S.
The central bankers’ decisions are complicated by new headwinds facing the global economy, including Israel’s war with Hamas, Russia’s continued war on Ukraine and high energy prices. A broad rise in global bond yields is also putting downward pressure on growth and inflation. […]
In addition, the value of the euro has declined to about $1.05 from $1.12 in July. This pushes up inflation by raising the cost of imported goods.
Lagarde wouldn’t be drawn on what it would take for the ECB to consider rate cuts, but pointed to wage agreements as a key metric. Analysts expect the ECB to start cutting interest rates around the middle of next year.
“It’s clear that policy makers want to see wage growth slow markedly to levels more consistent with the inflation target,” said Jack Allen-Reynolds, an economist with Capital Economics. “We think it will take until the second half of next year for policy makers to be willing to start cutting.
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