After two years of rapid interest rate hikes, central banks are finally shifting gears. In 2025, ECB has already slashed its benchmark rate from nearly 4% down to about 2%. The US Fed is also stepping off the brake, delivering its first 0.25% rate cut from a much higher peak and indicating more to come by the end of the year. Not to forget, even BoE has begun trimming rates.
After two long years of rate hikes, the pendulum has finally swung the other way. Both the Fed and ECB have started cutting interest rates, easing financial conditions that had been tightening since 2022. But here’s the twist, markets on both the sides aren’t reacting the same way.
Investors often think of health care as a “safe harbour” – people need medicine whether the economy booms or busts. But the picture in Q2 2025 is mixed. Over the past year health-care shares have lagged the wider market, leaving valuations near multi-year lows. That has caught some bargain-hunters’ eye: the S&P 500 Health Care index was flat in early 2025 while the S&P 500 gained around 7%. At the same time, the sector is home to new blockbuster drugs and AI-driven innovation. In short, health care is playing both roles – steady defensive sector and potential growth story. So which wins out?
Central banks finally look ready to ease up. After two years of aggressive hikes, rates are edging lower. The BoE has trimmed Bank Rate to 4% from 5.25%, the ECB has cut back to 2% from its peak of 4%, and the Fed followed with a reduction last week.
After two years of rapid rate hikes, central banks are finally shifting gears. The ECB has already cut its benchmark rate back down to around 2% after peaking near 4%, while the US Fed is only just starting to trim from its much higher peak. That divergence leaves investors asking an awkward question: if rates keep sliding, which side of the Atlantic has the stronger banks?
