Cantillon: US rate hike is coming, but all quiet on EU front

European Central Bank unlikely to signal any easing of stimulus programme just yet

 Fed chairwoman Janet Yellen: more or less confirmed   that US interest rates would rise  this month. Photograph: Brendan Smialowski/AFP/Getty Images

Fed chairwoman Janet Yellen: more or less confirmed that US interest rates would rise this month. Photograph: Brendan Smialowski/AFP/Getty Images

 

There was a time when central bankers would go out of their way to say nothing at all. Alan Greenspan, the former chairman of the US Federal Reserve, was famous for his obfuscation. Here at home, a succession of governors of the Central Bank of Ireland, in an era when Ireland controlled its own interest rates, took pride in not giving the slightest hint on when interest rates might rise or fall.

Now all is changed. Central banks seek to give “guidance” to the financial markets in the same way as companies do about their financial prospects. This means interest rate changes rarely come as a surprise.

Janet Yellen, the Fed chairwoman, more or less confirmed on Friday that US interest rates would rise in the middle of this month, unless there is some surprise weakness in the economic data in the meantime.

Second increase

This week, expectations in the market have moved decisively towards the likelihood of a March hike. Just as significantly, investors are now starting to accept the average view of Fed governors that rates will rise three times in total this year – in other words, twice more after the March hike. We are finally moving back into some kind of normal US interest rate cycle.

Monetary stimulus

Will ECB rates rise later in 2018? They could, but it is too early yet to call this one. However, the US trend will now start to slowly bring the prospect of higher euro zone rates slowly into focus.

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