ECB’s Knot: Financial Markets Will Probably Have to Adjust 2024 Easing Expectations

1 June 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Thursday said that financial markets would probably need to modify their rate cut expectations for 2024.

In a speech in Brussels, Knot, who heads De Nederlandsche Bank, said, ‘Renewed volatility in the financial markets could also spell trouble. Investors have so far been very optimistic about inflation. The general expectation is that we will have returned to the target level of 2% by the end of next year.’

‘Financial markets are already pricing in interest rate cuts for next year’, he continued. ‘If they have to adjust this expectation, which is not unlikely, this could lead to new corrections.’

Against the backdrop of substantially higher public debt driven by the fiscal policy response to the pandemic, Knot observed that, were interest rates low, this would be relatively unproblematic.

‘But with rising interest expenses, it could cause problems’, he said. ‘This is particularly true for large debts that need to be rolled over and reinvested in the short term.’