The European Central Bank (ECB) has given its strongest signal yet that it will start cutting interest rates beginning next month.

According to the minutes of the ECB’s April policy meeting, “It was seen as plausible that the Governing Council would be in a position to start easing monetary policy restriction [in] June.”

Not only that, policymakers indicated that June’s rate cut would not be a one-off but the first in a series of cuts.

“The risk of undershooting the inflation target and eventually having to pay too high a price in terms of declining activity was now seen as being at least as high as the risk of acting too early and overshooting the target over the medium term,” the ECB said.

The ECB has good reason to be concerned about “declining activity.”

The eurozone economy has barely grown over the past year and even entered a technical, albeit mild, recession in the second half of 2023.

In March, central bank officials downgraded their outlook on the economy, forecasting growth of just 0.6% this year, down from 0.8% previously.

Against this backdrop, economists expect three rate cuts from the ECB this year, with most bets placed on the June, September, and December meetings.

ECB certainty versus Fed uncertainty

The ECB is moving with greater certainty on interest rates even as the U.S. Fed remains non-committal on the future of its monetary policy.

Like other central banks, the ECB raised interest rates sharply in response to rising inflation. But unlike the Fed, the ECB has made better progress in bringing inflation back down to its target level.

Inflation in the 20-member eurozone fell to 2.4% annually in April, down from 5.5% a year earlier.

Meanwhile, the U.S. Consumer Price Index re-accelerated to 3.4% annually in March, with forecasts calling for “sticky” inflation to persist for longer. That puts CPI even further away from the Fed’s 2% target.

Economists said the latest batch of U.S. GDP figures were the “worst possible outcome for the Fed,” as they showed a slowing economy and accelerating inflation.

“What does the Fed do when inflation is rising, but the economy is weakening? If you cut rates, inflation will skyrocket. If you raise rates, the economy crashes,” The Kobeissi Letter said of the Fed’s ongoing rate conundrum.

Unlike the ECB, the Fed doesn’t even have a “game plan” for its interest rate policy anymore, said Ed Al-Hussainy, a senior analyst at Columbia Threadneedle Investments.

The Fed will hold its next policy meeting between June 11-12.