A lower-than-expected rise in US consumer prices in mid May was a timely reminder of the unpredictability of US monetary policy. Banks are split between anticipating a reduction in interest rates next month; reckoning on a period of stability; or thinking that the US Federal Reserve will hike rates at least once more this year.
BNP Paribas reckons May’s hike will be the last of the cycle with previous increases already beginning to weigh on the real economy. It acknowledges that this policy could shift if credit conditions continue to deteriorate.
In Europe, BNPP suggests, there is a clear bias from the ECB for further rate hikes, referring to ‘future decisions’ that will ensure policy rates are brought to sufficiently restrictive levels to return inflation to its target rate in a timely fashion.
ECB president Christine Lagarde has stressed that it could continue hiking even if the Fed kept rates on hold, while the ECB’s governing council has pledged to keep interest rates at sufficient levels for as long as necessary.
BNP Paribas analysts view that as a possible warning to markets not to price in cuts too soon.
