Report
In the past, have we seen major errors in financial markets' forecasts of central bank interest rates?
It is almost certain that the financial markets are now significantly overestimating the speed and scale of the central banks' interest rate cuts (we are looking at the Federal Reserve and the ECB), due to their over-reaction to falling inflation. We seek to determine whether we have ever seen an overestimation of central bank rate cuts, starting from a situation where monetary policy was restrictive to combat inflation. We look at the periods of central bank rate cuts that began in 1989 in the United States and in 1993 in the euro zone (in Germany). We can see that the phenomenon of exaggerated expectations of a future fall in short-term interest rates already occurred in 1995 and 2002, leading to an upward correction after the sharp fall in interest rates.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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