Central banks signal the end of the long tightening cycle
Policymakers held rates steady for a third consecutive meeting and, for the first time, discussed the sequencing of cuts in public.
Rates stayed where they were, which surprised nobody. The language around them changed, which surprised almost everyone.
For two years the message had been a single note held very steady: inflation is too high, policy will stay restrictive. This week's statement replaced that with something closer to a question — how quickly can restriction be unwound without undoing the work.
Markets did the arithmetic immediately. Short-dated government debt rallied, bank shares gave back part of their year, and the currency slipped against its main trading partners before recovering most of the move by the close.
Economists cautioned that a change in tone is not a change in policy. Services inflation remains stickier than the headline number, and wage growth is still running above the level consistent with the target. A single disappointing quarter would put the discussion back where it was.
What has shifted is the balance of risk. For the first time in this cycle, officials described the danger of keeping policy too tight for too long in the same breath as the danger of cutting too soon.
