House opinion in June

Every month we publish our opinion on the macroeconomic environment.

Looking at the arguments put forward by the Swiss National Bank that led to a reduction in interest rates in March, you would have to conclude that it is about to cut them again from 1.5% to 1.25%. In its March forecast the SNB was assuming the neutral real interest rate was 0%; if this is the case, the neutral nominal interest rate should be roughly 1%. As expected, consumer prices in Switzerland recently rose again slightly, from 1% to 1.4%, but with few signs so far of any major knock-on effects. Another factor pointing to a rate cut is that the SNB leadership have shown themselves to be very business-focused. With both current and forecast inflation again comfortably within its target range, the SNB will be keen to boost exports as a way of providing a good basis for economic growth. Despite all the factors pointing to a rate cut on 20 June, the committee also notes that the SNB has no direct need to take any further action. It is therefore perfectly possible that in a more cautious scenario, the SNB will hold off for a while and then cut again in September.


In the USA, inflation is still relatively high. The most recent release of consumer prices shows an increase of 3.4% year on year, well above the Federal Reserve’s 2% target. However, despite high interest rates of 5.25%-5.5%, the US economy is proving robust and surprising investors by producing solid data, reducing the need for rate cuts in the near future. Comments by various members of the Fed give the impression that the central bank will take its time before making its first cuts from autumn onwards.


On 6 June European Central Bank President Christine Lagarde announced the bank’s first rate cut, from 4.5% to 4.25%. She definitely has the toughest job of all the major central bank heads. The European economy is not doing particularly well and is threatening to slip into a technical recession. At the same time, some members of the currency union are highly indebted and inflation remains above the ECB’s target. The ECB is likely to announce another two rate cuts in the autumn in an attempt to stimulate the economy.


In the current environment, the macroeconomic committee assumes the SNB may cut rates by a further 0.25 percentage point to 1.25% in June. The ECB is likely to announce another two rate cuts in the autumn in an attempt to stimulate the economy, whereas given the most recently released inflation figures the Fed will probably wait until later.