The right temperature

Unlike the historic decision by the Bank of Japan earlier this week to move to positive rates for the first time in 8 years, there was nothing surprising coming from the US central bank yesterday. The Fed still signals 3 rate cuts for 2024 and moved toward slowing the pace of reducing their bond holdings. Both bond and equity markets reacted positively to the news. As we have stated before, investors entered 2024 with high expectations of no less than 6 rate cuts and, only one month ago, still believed it was almost a certainty the FED would cut rates this month. With strong inflation data, expectations have now shifted. Our base scenario at ECP remains a soft landing of the US economy with no overheating or overcooling. As things stand today, the US central banks will start to cut rates later this year, but certainly slower than expected.