Subject to progress over spring, we think June is most likely when the ECB to begin easing, and we have summer pencilled in for the Fed (July).

Given that labour markets are structurally tight, real wage growth positive and fiscal policy expansionary, there seems little case for a return to the zero lower bound or negative interest rates over the course of the coming cutting cycle. 

We do not expect the FOMC to embark on a ‘typical’ rate cutting cycle, where the average peak-to-trough fall in rates over the past 40 years has been 500 bps. We expect the peak-to-trough in this cycle will be 200 bps.

For the ECB, we think that high levels of employment and a growth renaissance will prevent a return to negative real interest rates. We forecast 200 bps of ECB cuts, taking the main policy corridor to 2.0-2.5%.