Weekly Update - Economic data supporting a central bank status quo

The last week of April was marked by the release of several indicators on activity and inflation, as well as central bank meetings. In the United States, the Federal Reserve (Fed) kept its policy rate at 3.75%, maintaining a cautious tone in a context where activity remains resilient despite the energy crisis, while inflation continues to move away from the central bank’s target. In the euro area, the ECB also kept its key rate unchanged at 2%, in a context where, although Q1 26 growth figures were solid, leading indicators point to weaker activity momentum and stronger inflationary pressures ahead.

Federal Reserve : a status quo for Powell’s final meeting. 
The US monetary authority maintained its target rate range at 3.5%–3.75% at its April 29 meeting, as widely expected by markets, in what was Jerome Powell’s final meeting as Chair of the Fed’s Board. During the press conference, Mr. Powell once again delivered a cautious message regarding the outlook for the monetary policy cycle, emphasizing that “the center of the Board is moving toward neutrality on rates” and that “the labor market is showing increasing signs of stability, while inflation is behaving rather poorly.”
This cautious stance reflects an economy that remains resilient in the face of the energy shock, but with accelerating inflation. Indeed, the US economy posted Q1 26 growth of 2% quarter-on-quarter annualized, supported by positive contributions from private consumption and private investment amid the boom in AI-related investment. These investments should continue to support activity in the coming months, as evidenced by the strong increase in new orders for capital goods in February and March, as well as continued significant announcements of investment in data centers. While growth remains resilient, inflation has also remained elevated above the Fed’s 2% target. Indeed, PCE inflation, the Fed’s preferred measure, reached 3.5% for headline inflation and 3.2% for core inflation. While rising energy prices explain part of the increase, durable goods excluding energy and services are posting significant inflation rates. These inflationary pressures are expected to intensify in the coming months, further moving inflation away from the 2% target. In this context, we expect the Fed to keep its monetary policy unchanged in 2026.

ECB : a status quo ahead of rate hikes in the summer.
The European monetary authority also decided to keep its key rate unchanged at 2%. Like the Fed, the ECB maintained a conservative tone, while signaling an increased likelihood of rate hikes at upcoming meetings. Indeed, during the press conference, Ms. Lagarde emphasized that “the scenario is clearly diverging from the central scenario” and that “the Board discussed the possibility of a rate hike.” However, the economic backdrop differs in the euro area compared with the United States. While the euro area posted solid growth in Q1 26, with a 0.2% quarter-on-quarter increase excluding Ireland, leading indicators for April suggest a slowdown in activity in the coming months, for now mainly concentrated in the services sector. The manufacturing sector continues to benefit from the implementation of stimulus plans as well as restocking dynamics in anticipation of a longer energy crisis. At the same time, inflation in the euro area continued to accelerate in April, with headline inflation rising to 3%, reflecting higher energy prices, while core inflation increased only to 2.2%. In this context of slowing but still positive growth and rising inflationary pressures, it is likely that the ECB will begin a rate hiking cycle over the summer.

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