ECB Cuts Rates for First Time in 5 Years

story

Jun 06, 2024

Image copyright: Thomas Lohnes/Stringer/Getty Images News via Getty Imagesstory last updated Jun 07

The Facts

The European Central Bank (ECB) on Thursday cut interest rates for the first time since 2019 during its meeting in Frankfurt, Germany. The widely expected move brings the central bank’s rate down to 3.75%.
Rates had been at an all-time high of 4% before the 0.25 percentage point reduction. The 26-member rate-setting committee decided that inflation had eased enough to start lowering rates, even if annual inflation (2.6%) remains above the ECB’s 2% target.

The Spin

Narrative A

The EU has been one of the first major players to lower its interest rates, and the ECB’s decision could prompt the Fed to follow suit. Canada and other European countries have also trimmed their key rates in recent months, and it’s about time the US does the same. The Eurozone has dealt with the same inflationary pressures that the US has, if not worse, and it still managed to lower record-high interest rates. The pressure is now on Jerome Powell to act.

The Street

Narrative B

While the ECB’s move to cut interest rates is certainly welcomed, it is unlikely to make a major impact on the world economy since the Fed still runs the show. The US central bank has maintained its restrictive policy as it seeks to reach its 2% inflation goal. That, as well as other economic and social factors, will motivate Jerome Powell, not the decisions of his international peers.