Closing summary: Christine Lagarde leaves door open for lower ECB interest rates
The European Central Bank did nothing to direct investors away from the consensus view that it plans to ease interest rates further over the course of 2024. It announced fifth cut in seven months on Thursday.
President Christine Lagarde said that ECB policy is still “restrictive”, meaning it is bearing down on growth and inflation. Much of the discussion in the press conference revolved around the “neutral rate” at which monetary policy neither stimulates nor restricts growth. Lagarde suggested that any esimates of that were “premature”, suggesting that the bank has further to go in cutting rates.
Meanwhile, economic growth in the eurozone is “set to remain weak in the near term”, she said.
Financial markets were mostly unmoved on Thursday as Lagarde delivered a message very much in line with expectations.
Perhaps the statement that will live on the longest from the press conference was Lagarde’s strong disavowal of bitcoin having any chance of entering central bank reserves.
She said that reserve assets must be liquid, safe, and secure.
I am confident that bitcoins will not enter the reserves of any of the central banks of the members of the general council.
It came after the head of the Czech central bank said that he would consider shifting reserves into bitcoin, and Donald Trump said the US would build up a strategic bitcoin reserve after allying himself with cryptocurrency advocates during the presidential election campaign.
You can continue to follow our live coverage from around the world:
In the US, Washington DC officials believe there are no survivors after jet carrying 64 people collided with military helicopter
In US politics, RFK Jr and Trump FBI pick Kash Patel face Senate confirmation hearings
In the UK, Labour is warned tough laws against people smugglers in new bill could penalise asylum seekers
And in our coverage of the Middle East crisis, Israel delays freeing of Palestinian prisoners after chaotic scenes during Gaza hostage release
That’s all for today, but please do join me tomorrow for more live coverage of business, economics and financial markets. JJ
Back to that US GDP reading, at a 2.3% annualised rate for the fourth quarter it was the weakest end to a year since 2018.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, said that the world’s largest economy was held up by the consumer, but that may not last. He wrote:
Economic growth became increasingly reliant on households last year, with the 4.2% surge in consumers’ spending in Q4 driving essentially all of the overall increase in GDP, offsetting a big drag from inventories and weakness in investment.
However, we would caution against concluding that underlying domestic demand remains unassailably strong. We think that a substantial share of the gain in consumption in Q4 reflected households pulling forward purchases in anticipation of tariffs threatened by the new administration.
“Consumer spending remained resilient, while investment was weaker,” said Richard Flax, chief investment officer at Moneyfarm, an online wealth manager.
Despite [the weakening growth], the US economy has managed to avoid the long-feared recession following the Covid-19 pandemic. Investors are now trying to determine if the Federal Reserve will begin cutting interest rates again in 2025, after maintaining them on Wednesday. In a press conference, Powell stated that the economy “remains strong” while inflation “remains somewhat elevated.”
