Oct 20, 09:48 AM

ECB Aggressively Cuts Rates, Central Banks Accelerate Easing Amid Stagnation

Central banks globally are accelerating rate cuts amid economic stagnation. The European Central Bank (ECB) is notably aggressive, with euro money markets implying a 20% chance of a 0.50% reduction in December and almost fully pricing in 0.25% cuts at every meeting through April. Markets are pricing significant rate cuts through end-2025: -160 basis points for Canada, -150 basis points for the US, UK, Sweden, and New Zealand, -140 basis points for the Eurozone, -80 basis points for Switzerland, and -60 basis points for Australia. The ECB is considered the most mis-priced. Despite these cuts, real long-term yields are not decreasing, indicating that financial conditions remain tight and there is no positive impulse to growth. Bank of America's clients have shifted to a more hawkish stance following the September jobs report and GDP/GDI revisions, questioning the timing and necessity of the Federal Reserve's rate cuts. Cuts in November and December are still consensus, though some raised the possibility of a December pause. Morgan Stanley discussions continue to question whether the 50bps rate cut was a policy mistake.