By Tom Fairless
FRANKFURT--The European Central Bank held interest rates at a record high on Thursday, as sticky inflation keeps investors guessing when and how deeply major central banks will cut rates this year.
After an unexpectedly high inflation reading in the U.S. on Wednesday, markets pushed back expectations of an imminent rate cut there. That shift is now reverberating in Europe, where investors are betting that the ECB and other major central banks won't diverge much from the Federal Reserve.
The ECB said in a statement it would make future rate decisions based on incoming data. If that data "were to further increase [the ECB's] confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction," the ECB said in a statement.
The ECB is contending with a different economic landscape than the Fed. Inflation in Europe, while still above the central bank's 2% target, has been cooling steadily and economic growth has stalled since late 2022.
ECB officials have signaled they could start reducing their key rate as soon as June from its current 4% level as inflation declines across Europe, which would provide a boost to the economy. That could put the ECB ahead of the Fed, which hasn't signaled a date to start cutting rates. Like the Fed, the ECB has said it would base future interest-rate decisions on incoming economic data.
After the hotter-than-expected U.S. inflation data, investors are now pricing fewer than two Fed rate cuts this year, down from around three cuts previously. Investors simultaneously dialed back expectations of rate cuts by other major central banks, with the likelihood of an ECB cut by June falling to 82% from 91% the previous day, according to Deutsche Bank.
ECB President Christine Lagarde is expected to provide fresh insights into policymakers' thinking at a news conference starting at 8:45 a.m. ET on Thursday.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
04-11-24 0837ET
