• Fed to lead the easing spree in the fourth quarter of 2024
• A conservative approach is priced in for ECB and BoE
• SNB, BoC and RBNZ to ease further; RBA could follow suit
• BoJ could surprise with another rate hike by year-end

 More rate cuts on the way in the fourth quarter of 2024

Another round of central banks’ meetings has been completed with the Fed stealing the show by announcing the start of its easing cycle. The ECB, the Bank of Canada and the Swiss National Bank followed suit in support of their ailing economies or to weaken their currencies. On the flip side, the remaining central banks opted to stay pat and evaluate their economies' progression.

Looking ahead to the fourth quarter, and despite the elevated core inflation rates, the expected economic slowdown will most likely allow most central banks to announce further rate cuts. However, certain events like the November 5 US presidential election, and a likely escalation in the Ukraine-Russian conflict and a war in the Middle East could derail their efforts.

Fed vs ECB: easing to continue

When examining the underlying economic strength of these two regions, one could quickly reach the conclusion that the US is still the strongest economy as it continues to grow at a respectable pace and that inflation remains somewhat high. On the flip side, the eurozone is experiencing a very soft patch with Germany being the weakest link and flirting with another yearly contraction. Additionally, euro area inflation has eased considerably, as the headline rate is currently hovering a tad above the 2% target.

However, the Fed is concerned that the expected slowdown could stop it from meeting its dual mandate of price stability and maximum employment. As such, the market is currently pricing 77bps of extra easing by year-end and a total of 178bps of rate cuts by mid-2025. Oddly, despite the bleaker economic outlook, the ECB is seen cutting by 46bps in 2024 and by 142bps by mid-2025.

BoE and SNB to announce further cuts

Despite the Bank of England's inherit dovishness and headline inflation dropping aggressively, Governor Bailey et al have opt for a more conservative approach as the UK data remains consistent and they want more time to evaluate the expected fiscal tightening by the new government. However, the market believes that the BoE will announce 40bps further rate cut during 2024. A total of 122bps of easing is priced in by mid-2025, much less than the Fed.

Similarly, the SNB is seen maintaining its monetary policy easing strategy in order to boost its subdued inflation outlook and further weaken the Swiss franc. There is a 60% probability of another 25bps rate cut at the December meeting, with a total of 48bps of easing priced in by mid-2025, on top of the already announced 75bps reduction.

RBNZ and BoC on autopilot mode

Both the Bank of Canada and the Reserve bank of New Zealand are expected to keep their foot on the gas by announcing 68bps and 93bps of easing respectively by year-end. These levels rise to 160bps and 214bps by mid-2025 as the economic slowdown is expected to become more widespread. 

In the case of the BoC, the oil price outlook and expectations for aggressive Fed easing will probably leave governor Macklem et al with little choice but to cut further and cut deeply. In the meantime, the RBNZ is already in autopilot mode, as its own mid-August projections pointed to a significant monetary policy easing over the next 12 months.

BoJ could hike again, RBA to follow a more conservative approach

The RBA has, up to now, bucked the trend by remaining relatively hawkish as Governor Bullock et al remain dissatisfied with inflation's medium-term outlook. This situation could become more complicated if China's renewed set of stimulus measures produces fruit. A possible growth pickup in the world's second largest economy could materially impact its main trading partners.

Finally, the Bank of Japan continues its lonely road of monetary policy tightening. It has managed to hike by 35bps in 2024, but the market is less confident about its ability to announce another rate hike by year-end, especially as the Fed commenced its rates cutting cycle. The market is pricing in only 4bps of tightening in 2024, which means there is room for a surprise if the data allows it, with a total of 15bps of rate hikes expected by mid-2025.