A premature ECB rate cut before the Fed has risks

The writer is chief economist at Edmond de Rothschild group and member of the global investment committee of the private bank The latest signals from Christine Lagarde are that the European Central Bank might start the rate-cutting cycle earlier than the US Federal Reserve. The ECB president said last month that if there was not “a major shock in development”, the central bank was heading towards a moment where it had to moderate its restrictive monetary policy.

A further rise in energy prices would weigh on business investment in the short term, offsetting the expected positive impact on private investment of the rate cut. Second, a rate cut before the Fed would reinforce an impression in the markets that the ECB expects poor economic performance. The euro area’s economic performance is already among the worst in the developed world. In the first quarter of 2024, GDP increased by just 0.

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