The year of interest rate cuts by the world’s major central banks will be 2024, after about two years of meteoric increases, with the question that remains to be answered is exactly when they will start and how big they will be. The meetings of the US central bank (Fed) on Wednesday and the European Central Bank (ECB) on Thursday left no doubt that the upward cycle of interest rates has closed for both.

After 11 hikes totaling 525 basis points (5.25 percentage points) that brought its key interest rate to a range between 5.25% and 5.5%, the Fed kept it unchanged for the third consecutive meeting. Accordingly, the ECB kept its three key interest rates unchanged for the second straight session, with the deposit rate remaining at 4%, after 10 increases totaling 450bps.

At the Fed meeting, there was even a discussion about interest rate cuts, with its executives predicting – as part of their quarterly forecasts for the economy – three such moves, of the order of 25 bp. each, through 2024. The shift in its monetary policy appeared to vindicate money market estimates, although they expect even more cuts next year. The Fed’s forecasts and remarks by Chairman Jerome Powell sparked excitement among investors and a rally in stocks and bonds, with the Dow Jones hitting a new all-time high and the yield on the 10-year U.S. Treasury note falling below from 4%, for the first time in many months.

The excitement was not just about the mention of interest rate cuts per se, but also that they are expected to happen with the economy on its toes as Fed officials forecast that growth will slow in 2024, but remain quite satisfactory (1.4% against 2.6% this year). In other words, the Fed shares the view of a soft landing for the economy, when previous instances of large interest rate hikes have caused a recession in the economy.

On the other hand, the ECB avoided any mention of the timing of interest rate cuts, both with the announcement it issued after the meeting and with the statements of its president, Christine Lagarde, at the press conference that followed, while the markets expected as much it is possible that the first move in this direction will take place in March and that there will be a total of six reductions in 2024.

Markets made these predictions on the basis that inflation in the Eurozone has fallen more than in the US – to 2.4% versus 3.1%, respectively, in November – and its economy shrank marginally in the third quarter (0 .1% on a quarterly basis, while on an annual basis it was stagnant).

Lagarde admitted that inflation had fallen more than expected and that the outlook, based on new ECB staff forecasts, was more favorable than in September, with the consumer price index expected to rise 2.7% in mid levels in 2024 and 2.1% in 2025. It also acknowledged that all indicators of so-called structural inflation – which excludes energy and food prices – have fallen. However, he said that the domestic inflation index, which is mainly affected by wage increases and the extent to which businesses absorb them through shrinking profit margins, has not fallen significantly.

Therefore, he said, the ECB should wait for other data on the course of this index, which will give certainty for the reduction of inflation to the 2% target. He clarified that the central bank will wait for the data on the results of collective bargaining on wages in the first months of the new year, adding that in the first half of the year there will be a lot of data on wages and business profit margins as well as the general market situation work.

From Lagarde’s statements, it follows that interest rate cuts should not be expected in the first two meetings of 2024 (January and March), while from then on everything will depend on whether the ECB will have the data it wants to make sure of the reduction of inflation, combined with the course of the economy, for which the ECB predicts more stagnation in 2024 (0.8% increase in GDP from 0.6% this year).

Markets have pushed back to April their forecast for the first rate cut since Lagarde’s remarks, but are sticking to a total of six cuts of 25bps. each, next year. That means the ECB would have to cut interest rates at every meeting from April onwards, which some analysts see as excessive. Markets now expect the Fed to cut interest rates first from March, just as the ECB had preceded rate hikes.