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The ECB starts cuts earlier and may move faster than the Fed

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The European Central Bank cut all three of its key interest rates by 25 points, which is in line with market expectations.

The ECB has kept rates unchanged for the past nine months and tightened policy from July 2022 to September 2023, raising rates by a combined 450 basis points. In May, overall eurozone inflation added 0.2 percentage points to 2.6%. However, that didn't stop the ECB, which has been preparing markets for months for today's move. However, the move to ease ECB policy is supported by other data. Producer prices have been falling every month for the past six months, and in April were 5.

Rather than the opposite, Europe needs mild stimulus to avoid slipping further into recession due to tight policy. The fall in prices of a wide range of commodities makes it unnecessary to fear a return of 2022-style inflation. However, recent trends in container shipping prices make us wary of a possible repeat of the logistical problems seen in 2020-2021.

 

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