“We probably won't see any rate cuts in the US this year”

The U.S. economy continues to show great strength, with a growth forecast for this year of around 2.4%, expected inflation of close to 3% and full employment. With these figures, rate cuts are receding further and further away from the U.S. Federal Reserve (Fed) road map, as confirmed this week by the president of the central bank, Jerome Powell.

“It’s very difficult to justify lowering rates in the United States, more so than in Europe, considering that growth of around 2.4% and inflation of close to 3% for 2024 is expected,” explains Alberto Matellán, chief economist at MAPFRE Inversión, adding that it’s not easy to control price rises in America, given that they stem from a supply/demand imbalance, as opposed to Europe, where it’s all about monetary policy.

The case for a rate cut in Europe is very different: while it’s true that there has been a more significant drop in both growth and the rate of inflation, macroeconomic data are starting to improve, including in Germany, which is one of the economies that had been showing weakness.

“We have to see how rate cuts are justified if European growth begins to recover, which is what investors are hoping to see,” Matellán said. Inflation in the Eurozone is falling at a better pace, although Matellán emphasizes the need to see the details behind the data. "At first glance, the latest inflation figure is good and is moving toward the European Central Bank (ECB) target of 2%, but if drill down a bit, I see a few things I don’t like so much. Services, which are a very important component and the easiest to control in Europe, remain at 4%," he said.

China is also growing at a good pace, with GDP rising by 5.3% in the first quarter despite difficulties in some sectors, notably real estate. “There are still dangerous elements, but this isn’t the first data point published that has come in better than expected,” the chief economist pointed out.

Tensions in the Middle East

The escalation in geopolitical tensions following the attack by Israel on the Iranian Consulate in Damascus (Syria) and the subsequent response don’t seem to have had a major effect on the markets, at least for the time being.

Matellán believes that as long as there’s no external escalation, there shouldn’t be any significant impact on the markets. The chief economist doesn’t see the need to modify portfolios after these attacks. “The increase in geopolitical risk is dealt with through generic coverage and it’s usually very expensive, given that it’s focused more on institutional rather than private investors,” he points out, as compared to other things, like changes in interest rates, where it makes more sense to reorganize the portfolio.