Central banks readjust their strategies in response to changing expectations in 2024.

Central banks recalibrate their focus after expectations of a major relaxation in 2024 fade away Six months ago, the world's major central banks were laying the groundwork for an interest rate cut that would have been welcomed by many, from those with credit card debt to those looking to buy a home or boost a business. However, expectations of significant monetary policy relaxation for 2024 have largely dissipated amid a changing economic landscape. Back then, Federal Reserve Chair Jerome Powell mentioned in a press conference that rate cuts were being discussed globally. Investors were excited about the possibility of more flexible financial conditions, while organizations like the International Monetary Fund expressed concerns that cutting rates too quickly could undermine efforts to control inflation. However, those fears have not materialized. Persistent inflation, stronger-than-expected economic growth, and rising wages have led central banks to rethink their strategy. Although some initial steps have been taken in that direction, such as cuts made by the European Central Bank and the Bank of Canada, the initial haste has given way to a more cautious stance. After rapidly raising interest rates in previous years to combat inflation, Powell recently mentioned that any move to relax monetary policy would be gradual and reflected in easier financial conditions. The Fed's projections now point to a single rate cut at the end of the year, in contrast to previous expectations of three cuts. The perception among economists has changed significantly, with most expecting only one or two rate cuts by the Fed this year, instead of the four that were initially projected. On the other hand, market prices have fluctuated considerably, reflecting uncertainty about the direction of monetary policy. In the case of the European Central Bank, while economists anticipated a cut in June, market prices have varied drastically, showing a reduced expectation of interest rate cuts for this year. Monetary policy officials have warned of possible obstacles on the path to price stability, such as early parliamentary elections in France that could impact the economy. Despite these challenges, ECB President Christine Lagarde remains confident that inflation will reach the 2% target by the end of 2025. Mario Centeno, responsible for monetary policy at the ECB, highlighted the delicate balance central banks must strike between inflation and economic growth, emphasizing the importance of not adopting restrictive measures that could weaken the economic recovery in the eurozone. In summary, uncertainty surrounding global monetary policy has intensified in recent months, with central banks reevaluating their strategies as they face new economic challenges. Balancing inflation control and growth stimulus poses a delicate challenge for monetary authorities in a context marked by volatility and uncertainty.