As the old saying goes, when central bankers take the stairs up, they take the elevator back down. That was not the case this year, nor will it be next year, as we expect rate cuts to be more measured in 2025. However, regional differences are likely to emerge.
In the US the nominal short-term equilibrium level is between 3.6-4.3%, which leaves a margin of between 1 and 4 rate cuts between now and the end of 2025. Monetary policy will then be at its neutral point. Economic growth should surpass 2%, but private demand should normalise as the slowdown in the job market will continue.
In Europe, both the European central bank and the SNB will cut rates below neutral to respectively 1.75% and 0.25%. We expect growth to exceed 1%, but the risks are on the downside if the trade war intensifies.
In the UK, inflation does remain at approximately 0.6 percentage points lower than the Monetary Policy Committee had forecasted, which should lead the Bank of England to cut its policy rate to 3% at the end of 2025.
Discover our Outlook 2025.
