The level of mortgage interest rates is a key factor in housing costs and when buying a property. In Switzerland in particular, the last few months have been characterized by falling interest rates as a result of the Swiss National Bank lowering its key interest rates. Economic developments in Switzerland – but also in the USA – have given rise to expectations of further interest rate cuts by the respective central banks in recent weeks for a variety of reasons.
In its “Einschätzung Zinsmarkt – August 2024“, avobis has compiled the most important arguments for and against a further interest rate cut in Switzerland and the USA. The company does not rule out unexpected developments.
Interest rate trends in Switzerland
avobis writes on the situation in Switzerland: “The decisive factor will be whether the monetary policy framework justifies such a step (interest rate cut by 50 basis points; editor’s note) and whether Thomas Jordan will support this striking decision shortly before his resignation.”
Inflation forecast of the Swiss National Bank; source of the chart: avobis
avobis added: “The interest rate swap curve has fallen further this month, with rates for maturities of one year or more shifting almost in parallel by around 15 bps. This means that a normalization of the yield curve further into the distance.
This downward movement in swap rates is clearly due to growing expectations of potential rate cuts. For around a year now, these expectations have not only led to interest rates for short-term maturities, such as two years, but have also spread to longer maturities of up to ten years. There is therefore only further scope for lower long-term interest rates only if the SNB eases more than the market currently expects.”
avobis’ expectations for Switzerland
avobis expects the SNB to make further interest rate hikes at its next three meetings: “We now expect an interest rate hike of 25 bps in each of the next three meetings as a base scenario. If the Swiss franc continues to strengthen and the inflation data for August is clearly positive, this could pave the way for a rate cut of 50 bps in September. In this scenario, lower long-term interest rates are to be expected.”
Interest rate trends in the USA
According to avobis, there are also signs that the US Federal Reserve will cut interest rates. Its president, Jerome Powell, said at a conference that it was “time to adjust monetary policy.” The direction is clear, but the timing and pace of interest rate cuts must be aligned with upcoming developments and risks. According to Finanz und Wirtschaft, a “majority of economists recently surveyed by the Reuters news agency expect the key interest rate to be cut by a quarter of a percentage point on September 18: Further downward steps of the same magnitude could follow in November and December.”
The reasons for the expected interest rate cuts are generally considered to be the reduced risk of inflation in the USA and the danger of a weakening of the labor market.
Revision of US employment figures; source of the chart: avobis
avobis’ expectations for the USA
avobis summarizes its expectations for the US as follows: “The Fed is likely to cut interest rates by between 25 and 50 bps. Jerome Powell’s announcement in Jackson Hole served as forward guidance, which would otherwise have been necessary in September in order to avoid surprises. However, given the current level of interest rates, the effect of a rate cut of 25 bps will be small, which is why we believe a more decisive approach by the Fed with a rate cut of 50 bps is more likely.”
