JPMorgan Pushes Back European Rate Hike Estimates on Slow Growth

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JPMorgan Chase & Co. pushed back its estimates for when central banks in western Europe will next raise interest rates, citing trade tensions, slower economic growth and loosening at the Federal Reserve.

The revised outlook follows U.S. President Donald Trump’s threat of tariffs on Mexico, which prompted JPMorgan’s U.S. economists to pencil in quarter-percentage point rate cuts by the Federal Reserve for September and December this year. The European team led by Malcolm Barr expects the European Union to also face intensified tariff pressure.

A “common theme” is that “inflation concerns are either sufficiently distant to delay, or an outright inhibition to, monetary tightening,” JPMorgan said in a note.

The economists said the uncertainty over how the ECB will react to economic developments is currently very high, given that it still hasn’t signaled any forceful measures despite euro-area inflation stuck well below its goal.

The BOE will be affected through the exchange-rate channel by Fed rate cuts and slower ECB tightening -- along with Brexit and political risk. In Sweden, the Riksbank is struggling to boost underlying inflation, while Norway’s Norges Bank has above-target inflation. Still, JPMorgan says both have been sensitive to global uncertainty and declines in foreign market rates, and expects them to “turn more dovish.”

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