MNI FedSpeak Podcasts

Devlin Capital founder Ed Devlin discusses the outlook for Bank of Canada interest-rate cuts this year and how officials will manage sticky inflation and a weakening economy.

The euro area economy and inflationary dynamics are “still far away from a normal post-pandemic situation,” as supply-side shocks still resonate, the European Central Bank’s Director General for Economics at the Oscar Arce told MNI.“We are still seeing the persistent effects of the chain of shocks. It is not only the pandemic but it is the pandemic plus the energy crisis the geopolitical uncertainty created by the war in Ukraine but also by the Middle East,” Arce told an MNI podcast, in which he discussed an ECB Occasional Paper on post-pandemic inflation.

The U.S. Treasury market is still vulnerable to bouts of illiquidity and volatility although reforms like central clearing should help, says Samim Ghamami, an economist who is working on the issue at the Securities and Exchange Commission.

Financial market-based measures and surveys proved more reliable than macroeconomic models at estimating the neutral real rate of interest during the abrupt economic fluctuations of the pandemic, European Central Bank economists told MNI, adding that r-star is now at similar levels to pre-Covid times.

Former Fed board governor Kevin Warsh thinks the Fed's signaling of rate cuts this year prematurely loosened financial conditions, making its own job of bringing inflation back to 2% harder.

​Former Ontario forecaster and Canada Director at Oxford Economics Tony Stillo says the central bank will want to avoid public backlash against any misstep towards lower interest rates, and says that will delay a rate cut until June and keep it well above neutral all year.

Federal Reserve officials will probably wait until midyear before lowering interest rates despite market hopes for cuts as early as March, as inflation data stay choppy in coming months before resuming a downward trend, former Fed board economist Seth Carpenter told MNI

The eurozone economy is likely to avoid recession, but inflation should slow sufficiently for the European Central Bank to reduce its benchmark deposit rate by around 150 basis points this year, former ECB economist Riccardo Trezzi told MNI.Markets are moving rapidly to price in cuts, noted Trezzi, who said that while January’s Governing Council meeting should produce little change the possibility of downward surprises to inflation meant that cuts could begin to be considered by as early as March.“When markets understand that something has changed, in this case for the good, they always go ahead of the curve and try to anticipate because it’s the way you make money,” said Trezzi, who worked on the Federal Reserve Board’s inflation desk before taking on a similar role at the ECB.

The Fed's next move is likely a cut but won't come until later in 2024 because policymakers must be totally sure inflation is not going to plateau around 3% or even reverse recent declines, former St. Louis Fed President James Bullard tells MNI.