Eurozone Interest Rate Holds at 3.75%, US Fed Prepared for Rate Cuts in September

 The upcoming U.S. and European elections could affect government debt, inflation, and the global economy.

Inflation has been the centre of conversation among the biggest countries for over two years. Globally, central banks are either cutting rates or considering doing so as inflation has started to decline from the peaks of the last few years.  

Last month, the European Central Bank (ECB) reduced the interest rate by a quarter point to 3.75%, which made a difference in policies compared to the U.S. Federal Reserve, which has kept rates between 5.25% and 5.5% for seven consecutive meetings. The ECB and the U.S. Fed are both ready to cut interest rates by 25 points in September. The decline is anticipated amid rising economic stability as well as concerns about the labour market.  

The European Central Bank (ECB) Held Rate Cuts in Latest Meeting  

The European Central Bank (ECB) has decided to maintain the interest rates of the Eurozone at 3.75% for now but suggested that there might be a rate cut in September.  

The International Monetary Fund (IMF) said this week that public finances in many countries have shifted more than expected before the pandemic, making them prone to economic shocks.  

The upcoming U.S. and European elections could affect government debt, inflation, and the global economy. According to the ECB’s President Christine Lagarde, the possibility of a rate cut in September is still “on the table.” She tried to dispel fears about increased rates in the future, saying:  

“What we do in September is wide open and will be determined on the basis of all the data that we will be receiving.”  

The ECB’s governing council was secretive about its plans to cut rates. But after the meeting, some council members recalled a consensus to keep the options open for September. They worried that inflation in areas above 4% is a concern and might postpone the rate cut to the year's second half.  

“Let’s come back in September and have another look,” one member said, as Lagarde expects inflation to reach the 2% target by the end of next year.  

Even though the Eurozone’s inflation rate is on a ‘disinflationary path’, the ECB still thinks it must maintain high interest rates for now.  

U.S. Fed Prepares for September Cut as It Shifts Focus to Jobs  

To decide on further cuts, Fed officials still want to see monthly price numbers continue to move towards their 2% annual inflation goal before they commit to reducing borrowing costs from their two-decade high.  

“It’s not just about getting inflation down,” Powell told House lawmakers on July 10. “We need to be mindful of where the labour market is.”  

Fed officials have indicated three more rate cuts this year, leaving analysts and traders to believe the first cut will be in September. San Francisco Fed President Mary Daly said in an interview that some issues in the labour market are not severe enough to warrant an emergency response. However, policymakers understand that things can be quite dynamic and may change in the blink of an eye.  

“We don’t want to be to a point where we start to see the labour market weaken substantially—to falter—because by then, it is actually often too late to bring it back,” Daly said.  

Hiring has recently taken significant steps but is heavily focused on specific sectors. Fed Governor Lisa Cook said on July 10 that the Fed is very attentive to the unemployment rate and will be responsive if it takes a wrong turn.  

“It’s really time to have both of our dual mandates squarely in our mind,” Daly added. “We have to watch both of them as we do the risk management of how we get to a place where we have both sustainable price stability and full employment.”  

Rate cut decisions from the ECB and the U.S. Fed affect not only traditional financial systems and stocks but also cryptocurrencies, real estate, and most industries.