Market expectations have increased for global central banks to ease their aggressive monetary tightening campaigns and begin cutting interest rates this year. With inflation pressures expected to continue receding, the Federal Reserve, European Central Bank (ECB), and Bank of England (BOE) are expected to lead the push to lower interest rates this year. However, Japan may remain the standout among its peers, with the Bank of Japan (BOJ) expected to exit negative interest rates and tighten monetary policy.
The Fed signaled in its December dot plot of interest rate expectations that it expects to lower interest rate by -75 bp this year from the current fed funds target range of 5.25%-5.50%. However, market expectations are well ahead of Fed projections as the swaps market anticipates the Fed will cut rates by 150 bp this year, with the first 25 bp rate cut coming at the April 30-May 1 FOMC meeting. Fed Chair Powell, at last month’s FOMC meeting, said that the Fed could “proceed carefully” on easing policy, suggesting the Fed is in no hurry to cut interest rates and that it was premature to declare victory against inflation.
