Central Bank Update: ECB Holds Rates, Fed Signals Caution

The European Central Bank (ECB) maintained its deposit rate at 2% in October, marking the third consecutive hold since the initial cut in June. Eurozone inflation remains close to target, while Q3 GDP growth of 0.2% indicates moderate, resilient expansion.

President Christine Lagarde noted that the economy is supported by robust labour markets and solid private sector balance sheets, though external demand remains constrained by geopolitical tensions, trade frictions and a stronger euro.

The ECB reiterated its data-dependent approach, suggesting that additional rate cuts are unlikely in the near term.

By contrast, the US Federal Reserve implemented a 25-bps rate reduction to 3.75%–4.0% and announced plans to end quantitative tightening in December. Chair Jerome Powell emphasised that a further cut this year is “not a foregone conclusion”, reflecting ongoing divergence in FOMC views and recognition of resilient US growth.

The announcement prompted a market reaction, with Treasury yields rising, equities softening and the US dollar strengthening.

Looking ahead, monetary policy on both sides of the Atlantic is entering a more selective phase:

• The ECB is likely to maintain rates, contingent on continued growth and stable inflation.

• The Fed may pause to evaluate inflation and financial conditions before resuming easing.

Investors should monitor upcoming economic data, inflation trends and geopolitical developments, as these will inform the trajectory of central bank policy and influence global financial markets.