The Fed gives in to the clamour for looser money

For most of 2023 big central banks have shrugged off investors’ bets that interest-rate cuts were imminent. That all changed on December 13th, when the Federal Reserve signalled that it expected to cut rates by three-quarters of a percentage point in 2024, coming close to endorsing markets’ doveish views and causing a frenzy of buying on a delighted Wall Street. At the start of the month Jerome Powell, the Fed’s chairman, had said that it was premature to discuss the timing of rate cuts. Now he says loosening is under discussion for the first time since inflation surged after the covid-19 pandemic.

Could the pivot set off a global move towards monetary easing? As we went to press the Bank of England and the European Central Bank were due to announce their monetary-policy decisions, having, like Mr Powell before this week, recently pushed back against the idea that rate cuts were imminent. The irony is that a turn towards looser money looks far more appropriate in Europe than it does in America, where Mr Powell is gambling that recent good news on inflation will keep rolling in.