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Stumbling blocks in Europe and a change of focus in the US. Even though the starting situations in Europe and the US are different, the solution is similar. Will we see further interest rate cuts in September?

The U.S. economy is slowing down. This provides scope for rate cuts. Cuts have already been made in Europe, and seem to have hit the mark. The mechanism of interest rate cuts is turning the wheels on the long-awaited economic recovery. But be warned: the destination may be in sight but turbulence could make for a bumpy landing.

Interest-rate cuts have begun despite divergent data. Whether or not the stimulus is enough to reinvigorate the European economy on a lasting basis is uncertain. In the U.S., leading indicators are contributing to a mixed picture, and China is injecting further stimulus, particularly in the real estate sector.

It is well known that the final push is the hardest. And that goes for the fight against inflation too. In light of the good progress made, western central banks will now start cutting rates, but there won’t be many. A soft landing therefore also remains highly likely. We see geopolitics and overwhelming national debt as potential risk factors.

Solid labour markets, a strong services sector and progress in the manufacturing sector are injecting positive impetus into the global economy. Driven by the U.S. economy, the IMF has upwards slightly its growth projection. Stagnating disinflation raises the question as to whether interest rates are restrictive enough at all.

Growth prospects are improving globally. In light of this, inflation data will remain persistently higher than the central bank target despite the successes in previous quarters. Nevertheless, both the ECB and the Fed will follow Switzerland’s example and start cutting interest rates in June. In our view, the biggest future risk apart from the ongoing geopolitical challenges is the problem of national debt.