A sign of the European Central Bank stands in front of the bank's headquarters in Frankfurt am Main, Germany, on Jan 25, 2024. FRANKFURT: The European Central Bank went ahead with its first interest rate cut since 2019 on Thursday , citing progress in tackling inflation even as it acknowledged the fight was far from over.
But that progress has stalled recently and what had looked like the start of a major ECB easing cycle only a few weeks ago now appears more uncertain due to signs that inflation may prove sticky, as has been the case in the United States. "Despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year."
Money market investors trimmed their bets on rate cuts after Thursday's announcement and only priced in one more, with a slight risk of a second, for the remainder of the year. Inflation in services, which some policymakers have singled out as especially relevant because they reflect domestic demand, has been a particular concern after a rise to 4.1 per cent in May from 3.7 per cent a month earlier.
A more restrictive Fed would likely mean a weaker euro and higher imported inflation for the currency bloc, but it would also increase yields on global bond markets - a double whammy whose net effect is hard to predict.
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