Central Banks Set to Reverse Course on Rates as Inflation Cools, With Cautious Cutting to Begin in Europe

Central banks started raising rates in late 2021 to tame high inflation but are now poised to reverse course and cut rates as inflation cools.

The Swiss National Bank already cut rates while the ECB is expected to cut in June and the Fed and Bank of England may follow in June or July.

Rate cuts will be small, in 25 basis point increments, and likely spaced out with pauses, a stark contrast to large hikes in 2022.

The Fed may end up cutting later or less than European central banks since the U.S. economy remains relatively strong.

Some argue ultra-low rates may not return due to investment needs related to climate change, technology, and geopolitics lifting the neutral rate.