Remember, the easing cycle has already started for the "advanced economies." It started with a surprise rate cut from the Swiss National Bank in March. Then the Swedish central bank cut in May. The European Central Bank is expected to follow on Thursday, with its first rate cut after a 450 basis point tightening cycle.
The Bank of Canada will kick things off on Wednesday. The policy rate there is 230 basis points above the inflation rate. But rate cut expectations have diminished over past three weeks, from a 70% probability of a cut to just 36%.
It sets up for a surprise. The Canadian economy has grown less than 1% over the past four quarters, and just undershot expectations on Q1 growth in a report this past Friday.
The Bank of England decision comes on June 20. Of all the central banks mentioned, with the plunge in the recent inflation reading to 2.3%, the Bank of England now has the tightest policy (i.e. the highest real interest rate). Not surprisingly, the economy is growing at sub-1%. They should be cutting.
With all of the above in mind, as we've discussed often in my daily notes, we should expect the closely coordinated policies of the past fifteen years by major central banks to continue in this easing cycle.
But as we've also discussed often, the pendulum of rate expectations in the U.S. has swung from one extreme to the other over the past five months.
The current extreme is represented in this cover of Barron's over the weekend …
This, as the Fed has the second tightest policy of the central banks discussed, and with Q1 growth having just been revised down to just 1.3%.
We should expect more and sooner action from the Fed than the market has priced in.
