The other terminal rate: How far will policy rates be cut?

Both central banks are saying the same -it depends on the data- but the ECB communication is more opaque than that of the Federal Reserve, which provides interest rate projections of the FOMC members . In assessing how fast and how much the ECB might cut policy rates in this cycle, several approaches can be adopted. Based on the credibility of the ECB and plausible estimates of the neutral rate, it makes sense to use an assumption of a range between 2.00% and 2.

Speaking at the recent ECB Watchers conference, Christine Lagarde stated “We cannot precommit to a particular rate path however tempting that is, however much some of you would like to see it. If we are honest to our methodology and if we have discipline in adhering to this principle, we cannot.

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