The Federal Reserve and the European Central Bank will need to keep interest rates high for longer than investors expect to ensure inflation is weeded out of their economies, OECD chief economist Clare Lombardelli told Bloomberg Television. 

The Paris-based organisation said in its economic outlook that rate cuts will only begin in the US in the second half of 2024, and not until the spring of 2025 in the euro area. That contrasts starkly with the expectations of markets, which are currently pricing the Fed and the ECB to ease policy as soon as the first half of next year. 

“There’s a lot of strength in American consumers in particular so what we are expecting is for it to take a bit more time for inflation to come back to show a persistent downward trend and come back to target,” Lombardelli said on Wednesday (Nov 29). “Monetary policy is going to need to remain restrictive for a period.”

In the euro area, she said the OECD expects inflation to come down only slowly, even as it cut its growth forecasts for the bloc.

“We’ve seen record rates on inflation in response to the shocks the economy has been through and it will take some time for that to come back to target,” Lombardelli said. BLOOMBERG