Interest rates: further room to fall?

There are several central bank meetings in June, including the US Federal Reserve (Fed), Bank of England (BoE), European Central Bank (ECB) and Swiss National Bank (SNB). The outcomes of these meetings are likely to vary: the Fed and BoE may stay on hold, while the ECB and SNB are expected to lower their respective policy rates. Looking ahead, how might central bank policy rates evolve over the rest of this year?

Rates round-up

To start with, most of the major central banks have continued to lower their respective interest rates in 2025, albeit at different paces (figure 1).

Figure 1: Central bank policy rates overview

^{Source: Rothschild & Co, Bloomberg. Note: Consensus analyst forecasts are collated on Bloomberg. The US uses a target rate range: we have quoted the upper bound. *Brazil and Turkey briefly cut interest rates before hiking again.}

The Fed – the most important central bank – has arguably been in the more hawkish camp. It has bucked this year’s wider rate cut trend by leaving its target rate range unchanged at 4.25-4.50%, though after a percentage point of easing in 2024. In recent months, Fed policymakers have highlighted their concerns around persistent inflationary pressures arising from tariffs (following the likely initial spike in consumer prices).

Across the Atlantic, the BoE probably sits in the middle of the dovish-to-hawkish spectrum. It has continued to lower its base rate gradually this year, by half a percentage point, to 4.25%. Inflation has been stickier than most other economies – core inflation is almost double the Bank’s target – and wage growth, arguably the biggest inflation driver for most developed countries, remains elevated.

The ECB and SNB both sit in the dovish camp. The former has in fact reduced its deposit rate at each of its three meetings this year, to 2.25%, amid a relatively subdued growth-inflation mix (and the threat of US tariffs). Meanwhile, the SNB may have cut its main interest rate just once this year, to 0.25%, but it only meets on a quarterly basis – and previously signalled that it could be open to negative rates again. Of course, Switzerland has little inflation risk, and policymakers do not want the franc to strengthen too much (to try to protect its export-orientated industries).

The Bank of Japan is perhaps the outlier in developed markets, given it has been raising its policy rate. However, total hikes to date have been just over half a percentage point, to 0.50%, and developments there carry little significance for global investment portfolios (despite all the attention it receives).

Finally, in emerging markets, most central banks also appear to be lowering interest rates, particularly in tariff-exposed nations, such as Mexico and parts of EM Asia. Nonetheless, just like among developed economies, there are instances where interest rates are moving in the opposite direction. For example, the Brazilian central bank has restarted its hiking cycle, with inflation well above target, while Turkey is also increasing rates again (monetary policy there is somewhat unorthodox, and influenced by election cycles).

Gradual easing ahead?

Money market interest rate expectations have been highly volatile over the past couple of months, mostly due to Trump’s shifting tariff policy (and the subsequent changes to their expected growth impact). At the moment, half a percentage point of easing is priced-in for the Fed in 2025, with the first of those cuts pencilled-in for September. In Europe, a similar magnitude of easing is expected for the ECB and SNB – the latter rate would turn negative if so. For the BoE, only one further cut is fully priced-in, which could occur in the fourth quarter.

These market-implied rate trajectories seem broadly plausible in our view, though if anything, could be more hawkish. While President Trump has voiced his annoyance (to put it lightly) with the lack of rate cuts, there does not appear to be an urgent need to reduce interest rates. The US economy appears in good health – consumers are still spending; unemployment is low – and inflation remains above target. Tariffs may of course dampen domestic growth this year, but the hit may not be that large if Trump does indeed moderate his tariff stance. Elsewhere, the BoE still faces elevated inflation which may limit easing. The ECB deposit rate is arguably no longer restrictive, after almost halving from its peak, and there is significant fiscal loosening on the cards (particularly in Germany). The SNB’s policy rate is approaching negative territory, so how much lower can it really go?

If interest rates stay close to ‘new normal’ levels (excluding Switzerland of course) because economies continue to grow, then stocks can (in due course) still benefit from higher profitability associated with that growth. Indeed, economies and stock markets have tolerated similar – and even higher – interest rates in recent history. It is easily forgotten that the prior decade or so of ultra-loose monetary policy was the anomaly…

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