European central banks are expected to move faster than the Fed this month but will keep interest rates lower than U.S. levels.
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Europe’s major central banks are set to increase interest rates by more than the Federal Reserve’s move on Wednesday.
The European Central Bank and the Bank of England are both expected to lift their benchmarks by a half point, compared with the Fed’s quarter-point rise yesterday.
Federal Reserve Chairman Jerome Powell said there will be “ongoing increases,” but stocks rose on optimism that the U.S. central bank is nearing the end of its hiking cycle.
European policy makers are moving in bigger steps than the Fed now—in large part because they moved more slowly last year, when the U.S. central bank unleashed the most aggressive round of tightening in a generation.
European rates will still be lower than in the U.S.—if they do what’s expected, the BoE key rate will be 4%, while the ECB’s will be 2.5%. The Fed’s main rate is a range from 4.5% to 4.75% now.
The economic outlook remains weaker on the other side of the Atlantic. The 20-country euro region is expected to expand 0.7% this year, down from 3.5% in 2022, according to the International Monetary Fund. The U.K. will contract 0.6% this year. That compares with a projected U.S. expansion of 1.4% this year.
Just like in the U.S., inflation in Europe is slowing as energy prices retreat, growth slows, and past interest-rate increases take effect. While central banks in Europe are moving faster now, overall they aren’t expected to increase rates by as much as the Fed has in the past year.
ECB President Christine Lagarde and BoE Governor Andrew Bailey will hold press conferences on Thursday to explain their decisions. The BoE will also update its quarterly economic forecasts.
Write to Brian Swint at brian.swint@barrons.com
Credit: marketwatch.com