ECB holds interest rates steady: What this means for the Fed

The European Central Bank (ECB) is holding interest rates at their current level for its fifth consecutive meeting. State-side, all eyes are still drawn on the Federal Reserve and when officials will prescribe their first dose of interest rate cuts as the US struggles with protracted inflation.

Yahoo Finance Senior Reporter Jennifer Schonberger joins the Morning Brief to discuss the economic cues that global central banks, such as the ECB and the Fed, are looking to.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video Transcript

JENNIFER SCHONBERGER: Hey, Brad. Good morning. That's right. The European Central Bank holding rates steady this morning for the fifth meeting in a row, as it set the table for a potential first rate cut in June, as Europe's economy and inflation have sharply slowed. Madame Lagarde saying moments ago during a press conference that some actually wanted to cut rates already at this meeting.

The ECB's decision underscores the growing divergence between the European Central Bank and the Federal Reserve here in the US, where hotter than expected inflation data has caused investors to push back expectations for when the first rate cut could begin here in the US. The European economy is going on a year and a half of stagnating growth with a weakening job market and slowing inflation. Meanwhile, here in the US, the US economy continues to surprise to the upside with a strong job market and hotter than expected inflation.

The majority of investors now expect the first rate cut in the US will come in September, scaled back from June on the heels of higher than expected readings on consumer inflation for three months in a row. Before Wednesday's inflation surprise, investors had seen the ECB and the Fed, as well as peers in the UK and Canada, moving in tandem. But if the ECB cuts first, that could weaken the Euro, as well as push down bond yields, causing a greater divergence between the yields on the US 10-year Treasury and Germany's 10-year bond.

Meanwhile, separately here in the US, New York Fed President, John Williams giving a speech just moments ago offering some reassurances on the back of the hotter than expected CPI number on Wednesday, saying that he expects inflation to gradually slow and that there will be bumps along the way, akin to what we have already seen recently. He says if the economy turns out as expected, it will make sense to cut rates gradually, starting this year.

So guys, a little bit of assurance there coming out from the head of the New York Fed.