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Aramea Asset Management said the U.S. Federal Reserve and the European Central Bank are likely to go into “wait and see” mode from the summer to see to what extent the tightening policies enacted so far have cooled demand and thus suppressed inflation.
If there are signs of success by the end of the year, a rate cut in the first half of 2024 is a possibility.
Aramea believes that the sufficient condition for the Fed and ECB to cut interest rates for the first time is not a recession, but a sustainable return to 2% inflation.
Under no circumstances, however, should headline inflation fall below 2%.
Instead, confidence in the central bank must be high enough to ensure that underlying inflation does not exceed 2% significantly.
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