The Great Central Bank Policy Reversal Kicks Off

• Central banks are carefully navigating a shift from a prolonged period of interest rate hikes to a strategy of gradual decreases in borrowing costs. This cautious approach reflects concerns about rekindling inflation amid ultra-low unemployment rates.
• Following synchronized rate hikes starting in late 2021, major economies are expected to see inflation stabilize around target levels this year. This stabilisation provides a backdrop for central banks to begin easing monetary policy.
• The Swiss National Bank's recent surprise rate cut signifies the beginning of significant policy easing, with expectations that the Federal Reserve, European Central Bank, and Bank of England will follow suit with further cuts.
• The U.S. Federal Reserve faces a unique situation, given the robust performance of the U.S. economy. Factors such as the upcoming election and growing concerns about inequality complicate the Fed's decision-making process.
• Europe confronts economic challenges, including Germany's recession and sluggish growth in the UK. Amidst these challenges, uncertainty looms over when rate cuts will end, especially as structural changes impact the natural rate of interest.
• Overall, the world's biggest central banks are on the starting line of reversing a record string of interest rate hikes, but the way down for borrowing costs will look very different from the way up. There will be no floodgates or fireworks. Instead, banks on opposite sides of the Atlantic are likely to move in the smallest increments with periodic pauses, fearing that ultra-low unemployment could rekindle inflation rates still above their targets.

(Source: Reuters)