MacroResearchBoard

Diverging Euro Area And U.S. Expectations – October 7, 2024

A just-published report pointed out the significant divergences between growth expectations and bond spreads between the euro area and U.S., divergences which will likely cause spreads to further widen. Early signs of divergence are also beginning to appear in forward markets.

There is room for the ECB’s dovish rhetoric to be sustained in the near run, given the building economic slack. The ECB may be considerably less eager than the Fed in committing to a more explicit dovish policy path by maintaining its stubborn gradualism. However, ongoing sluggishness in the economy and slightly faster easing in inflation pressures (including the latest flash reading of eurozone inflation) should prompt the ECB to cut at its upcoming meeting.