The great central bank policy reversal kicks off

The world's biggest central banks are on the starting line of reversing a record string of interest rate hikes but the way down for borrowing costs will look very different from the way up. There will be no floodgates or fireworks. Instead, banks on opposite sides of the Atlantic are likely to move in the smallest increments with periodic pauses, fearing that ultra-low unemployment could rekindle inflation rates still above their targets.

The eventual bottom for interest rates is also set to be far higher than the historic lows of the last decade and mega-shifts in the structure of the global economy could put borrowing costs on a higher path for years to come. Central banks started to jack up rates from late 2021 as post-pandemic supply constraints and surging energy prices on

Russia's war in Ukraine sent inflation into double-digit territory across much of the world.

This seemingly synchronized response tamed prices and inflation will be just above or already at target - 2 percent for most big economies - this year. "The bottom line is that across the OECD, central banks... are softening up again, or are about to do so," investment bank Macquarie said in a note to clients.

Indeed, the Swiss National Bank became the first major central bank ease policy on Thursday with a surprise 25 basis point cut to its key rate as inflation is already in the 0 percent to 2 percent target range. Wall Street's three major stock indexes on Thursday registered record closing highs for the second day in a row after the Federal Reserve reassured investors about the prospects for rate cuts this year. The move also ends rampant investor speculation that policymakers will be hesitant to move before the U.S. Federal

Reserve since any rate cut is certain to weaken a currency and push up imported inflation.

The European Central Bank is bound to be next in June after incessantly repeated references to that meeting painted the bank into a corner. The Fed and the Bank of England both hinted they could be next but have kept their language sufficiently vague to make moves in either June or July possible, provided data do not upset plans.

Still, investors expect the Fed, the ECB and the BoE to each deliver only 75 basis points of cuts by the end of this year, in three 25 basis point moves, tiny changes compared to rate hikes in 2022 when they sometimes increased rates by that much in a single day.

The pricing also suggests cuts at just three out of the five meetings each will hold between June and the end of the year, so pauses are also on the cards. To be sure, these banks are not the first to cut rates. Some emerging market economies, like Brazil, Mexico, Hungary and the Czech Republic have all cut rates already, but financial markets take their cue from the major central banks, so their influence on financial instruments is oversized. The Federal Reserve could in fact end up being the outlier this time.

The U.S. economy is chugging along and the Fed even upgraded its growth projections this week, meaning it may end up cutting rates when growth remains strong, or delaying cuts if inflation proves stubborn. In Europe, data continues to paint a bleak picture, with activity stabilizing at a low level. The U.S. election in November adds to the Fed's dilemma.

Policymakers do not want to be seen interfering with the vote, so if they cut, they need to do it well clear of November. "Traditionally, the Fed would not pivot rates policy to cushion inequality," Societe Generale strategist Albert Edwards said.