First to Cut: The Fed or the ECB?

April 11, 2024 | David Hernandez, CFA, Director of Traditional Manager Search

Based on implied probabilities derived from options markets, investors are currently forecasting an 82% chance that the European Central Bank will cut its policy rate at or before its June meeting. For the full year, market participants currently expect roughly three rate cuts by the ECB in total. By comparison, investors believe there is only a 46% chance the Federal Reserve will lower its policy rate in or before June and are now expecting fewer than two rate cuts from the U.S. central bank over the course of the full year.

Some of the primary reasons for these expectations involve both economic growth and inflation. To that point, in the fourth quarter of 2023, the U.S. economy grew 5.9% on a year-over-year basis. This is in stark contrast to the euro area, which produced 0.0% year-over-year growth for that same period. Estimates for first quarter GDP growth tell a similar story in terms of divergence between the two regions, as the U.S. economy continues to perform well due to a strong labor market and a resilient domestic consumer. On the inflation front, both regions have seen price levels fall from peaks seen in 2022, though European inflation has proved less sticky than that of the U.S. Specifically, the March reading for domestic CPI was 3.5%, which came in above both consensus expectations and the 2.4% figure for the euro area. In short, as it relates to monetary policy expectations, lower levels of economic growth call for more supportive monetary policy, and lower levels of inflation allow for such policy. Should current forecasts related to the trajectory of interest rates come to fruition, the U.S. dollar is likely to benefit relative to the euro, which may create a short-term headwind for non-U.S. equity returns. However, more accommodative monetary policy by the ECB may also serve as a medium-term tailwind for international stocks should the move result in stronger economic growth for the European continent.

Print PDF

David Hernandez, CFA
Director of Traditional Manager Search

Get to Know David

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content


A Falling Tide Lowers All Boats

The resilience of the American consumer has been an unanticipated phenomenon in the four years since the outbreak of the…


The “Fix” Is In!

The strength of the U.S. economy over the last several quarters has surprised many investors, as consensus expectations from the…


The Emergence of Argentinian Equities

Argentina has faced myriad economic headwinds in recent time, including hyperinflation, currency-related difficulties, and a series of defaults on its…


Is Bitcoin Fairly Valued?

Despite mixed performance to start 2024, bitcoin finished the first quarter up roughly 68%. Buoyed by a broad weakening of…


1Q 2024 Market Insights Video

This video is a recording of a live webinar held April 25 by Marquette’s research team analyzing the…


Mind the Gap

Any ride on the London Tube reminds riders to mind the gap: Beware the space between train car and platform…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >