Major Foreign Media, New Year Outlook
There is a forecast that major central banks around the world will begin cutting interest rates in earnest in the new year.
On the 1st (local time), major foreign media reported that as inflation rates decline in the United States, the European Union (EU), the United Kingdom, and other regions, pressure is mounting on central banks to lower interest rates.
Neil Shearing, Chief Economist at Capital Economics Group in the UK, said, "Inflation will slow down more than central banks expect," and predicted that disinflation will proceed faster in the US than in Europe. This suggests that the US Federal Reserve (Fed) is likely to cut interest rates before other central banks. He also stated, "2024 is highly likely to be the year when interest rates turn across all advanced economies."
Investors expect the Fed to cut interest rates five times within the year, starting with the first cut in March. The European Central Bank (ECB) and the Bank of England (BOE) are also expected to cut rates six times. The ECB is anticipated to implement rate cuts around March to April, while the BOE is expected to do so around May.
When the Fed decided to hold rates steady on December 14 last year, investors gained confidence that monetary easing was ready to begin in earnest. As a result, the financial markets surged sharply at the end of last year, and the Morgan Stanley Capital International (MSCI) World Index recorded its highest annual level since 2019.
Additionally, at the December meeting, the Fed projected that the current benchmark interest rate of 5.25?5.5%, the highest in 22 years, would be cut by 75 basis points over the next 12 months. Fed Chair Jerome Powell stated after the Federal Open Market Committee (FOMC) meeting that "there was discussion about cutting interest rates." John Williams, President of the New York Federal Reserve Bank, expressed that it was premature to cut rates, presenting a stance contrary to market expectations for an early Fed rate cut. However, foreign media analyzed that the majority of investors seem confident that the Fed is ready to start easing policies.
Thomas Vieladek, an economist at T. Rowe Price, said, "To achieve a soft landing and increase the likelihood of maintaining full employment while inflation slows, the Fed needs to adopt a more forward-looking approach to monetary policy." He also argued, "The inflation dynamics certainly guarantee a rate cut in early March," and "monetary policy will remain in a restrictive zone."
The ECB and BOE are taking a more hawkish (tightening-preferred) stance than the Fed. They believe it is premature to end the fight against inflation immediately. Rate cuts are expected around the second quarter. Eurozone inflation slowed to 2.4% in November, approaching the ECB's target of 2%. However, economists are cautious about the possibility of inflation reigniting. According to a foreign media survey, the majority of economists expect the ECB to start cutting rates by the second quarter of this year. However, only two economists predicted rate cuts in the first quarter of this year.
Economist Vieladek said, "I expect the ECB to cut rates as early as June this year." Andrew Goodwin, Chief Economist for UK Consulting at Oxford Economics, predicted that the BOE will begin cutting rates from May. UK Prime Minister Jeremy Hunt said in a media interview at the end of last year, "If we maintain the current direction, we can reduce inflation, and the BOE may decide to start cutting interest rates."
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