The case for cutting interest rates is getting stronger
It looks increasingly plausible that this tightening cycle has come to an end. It also looks quite likely that the beginning of the subsequent loosening is closer than central banks are suggesting.
Have central bank interest rates peaked in the US and the eurozone? If so, how quickly might they fall? From around mid-2021, central banks clearly had to tighten significantly. But what they have to do next is uncertain.
Whatever central bankers might say about what they plan to do, events always have the last word. If, as many now expect, core inflation falls quickly towards their target, they will have to loosen policy. While loss of credibility is damaging when inflation gets too high, it is also so when it gets too low.
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Martin Wolf is chief economics commentator at the Financial Times, London. He was awarded the Commander of the British Empire in 2000 “for services to financial journalism”.
