ECB is poised to cut rates again in warm-up act for the Fed

The European Central Bank will probably cut interest rates on Thursday in a prelude to a US move the following week, as the global monetary cycle tilts toward more synchronized easing. Euro-zone officials have signaled that they’ll deliver a second reduction in borrowing costs, following up on July’s move, which will be scrutinized by investors looking for policymakers’ intentions for any further steps later this year. At least one more cut is seen likely in 2024.
Along with the Sept. 4 rate move from the Bank of Canada, the ECB meeting’s timing – days before the Federal Reserve’s own initial reduction expected on Sept. 18 – underscores how large advanced economies are now shifting more in tandem as officials pivot to supporting economic growth now that they judge inflation risks to have faded.

In the euro zone, easing in a key measure of wage growth during the second quarter will have helped embolden policymakers.Similarly, a US consumer-price report due on Wednesday may offer Fed officials reassurance that inflation pressures are stabilizing, on the heels of data on Friday that showed US hiring fell short of forecasts.

For investors, the question hanging over this month’s meetings is the extent to which such rate reductions herald a deeper easing cycle that may not only remove constriction on major economies, but also begin to stimulate them.

Prospects for growth will be a focus when ECB President Christine Lagarde addresses journalists on Thursday “- not least in light of just-released data showing second-quarter expansion was weaker than initially reported.
Governing Council officials are thought to be more comfortable changing rates at meetings like the upcoming one, when they have newly-produced quarterly forecasts at hand. That would make a further cut in December more probable than one at their next gathering on Oct.17. Elsewhere this week, Chinese inflation data, UK wage numbers and rate decisions from Pakistan to Peru are among the highlights.