Economist expects interest rates to fall from June

The guardians of the euro would probably give way to the US Federal Reserve (Fed), the German economist said in an interview with the Reuters news agency published on Wednesday: “I think they will wait and see what the Fed will do and then follow behind.”

• also read: ECB or Fed: Who will cut interest rates sooner?

The ECB could then take its first easing step “around June”. Malmendier considers such a sequence of steps to be quite sensible given the direction of interest rate developments. She does not assume that inflation will be fueled again. “The one concern I have is about the recession,” added the economist, who teaches in the US. If there were to be a series of two quarters of shrinking economic output in Germany and perhaps France also weakened, in her view this could persuade the ECB to lower interest rates a little earlier or in larger steps: “If that happens, I would “I’m a little worried about whether we can really get inflation under control. But I hope that it won’t be the case,” said Malmendier.

ECB has “passed its baptism of fire”

The ECB has essentially “passed its baptism of fire” and has taken energetic steps to combat high inflation in the past. There was also a fear that the monetary authorities around ECB boss Christine Lagarde could be too soft: “That will give them credibility in the markets,” said Malmendier. “I hope they don’t jeopardize it if it comes to that, with several EU countries sinking into recession and there may be a temptation to take too big a step too quickly.”

The German ECB director Isabel Schnabel recently warned against lowering interest rates in the euro zone too early given the ongoing uncertainty regarding inflation developments. Investors are wondering when the ECB and the US Federal Reserve will loosen monetary policy. The ECB has been keeping interest rates unchanged since September 2023 after a series of increases in the fight against inflation. The deposit rate that financial institutions receive when they hoard excess funds with the central bank is 4.0 percent. The key interest rate at which banks in the euro area can obtain fresh money from the ECB is still 4.5 percent.