The markets closed a turbulent month of March with the instability of the financial sector as the protagonist. Fortunately, sanity has returned, largely thanks to the decisive action of the central banks and banking supervisors, who this time have been very quick to respond and generate confidence.
The crisis in the banking sector, now stabilized, has surprisingly had some positive consequences. The main one: it has managed to cool expectations of rate hikes by central banks. Not surprisingly, what the world monetary authorities have been seeking for more than a year is to cool down growth, in order to cool down inflation. And this is exactly what it has achieved, facilitating the work of central banks.
There are now many questions about whether or not the US Federal Reserve will raise policy rates again at its May meeting, and even if it did, it would probably be the last 25 basis points of hikes. What’s more, the futures markets even suggest that there could be rate cuts in the US starting in the summer, something premature – in my opinion – given the strength of the US job market.
As for the euro area, the preliminary inflation figures for March have once again shown persistently high core rate levels – the one that really matters. Therefore, it is quite likely that the ECB will raise interest rates again at the May meeting, although we would already be very close to the end. Again a change with respect to what was expected just 3 weeks ago, when we were talking about official rates in the Eurozone of 4%. In short, once the storm is over, calm returns and it’s time to look at business as usual, economic data, inflation trends and the future of central banks.
