The mood on the markets is brightening. Capital Economics is also optimistic about interest rate and inflation developments in the coming year.
• Inflation pressure in the USA and the Eurozone decreases
• Currency watchdogs remain cautious
• Capital Economics expects inflation rates and interest rates to fall in 2024
After recent US inflation data showed that inflationary pressure is easing, hopes are growing that the US Federal Reserve will cut interest rates for the first time. In addition, market participants were strengthened in their view that the US economy will achieve a soft landing, that is, a scenario with falling inflation without a recession or a sharp increase in unemployment.
Capital Economics expects inflation and interest rates to decline
This decline in inflation will continue next year, according to Neil Shearing, group chief economist at Capital Economics in London: “We believe that inflation in the US will ultimately weaken faster than the Fed expects.” Shearing wrote in a note, according to MarketWatch. “But inflation will also fall in the eurozone, the UK and other major industrialized countries… 2024 will likely be the year when core inflation finally gets closer to central banks’ comfort zone of around 2 percent,” said Shearing optimistically . Inflation is “still strongly driven by pandemic-related supply distortions” and is likely to decline further as these distortions subside, Shearing argues.
In view of this, central banks in industrialized countries are “likely to loosen their policies”. The Fed appears poised to lead the global easing cycle as the disinflation process in the US is further advanced and “there appears to be greater institutional hawkishness within the ECB,” he said.
Monetary authorities still cautious
In fact, ECB Council member Joachim Nagel has not ruled out a further interest rate hike in the current cycle, despite another significant drop in inflation in the eurozone in November. It also appears to the Bundesbank President that it is far too early to even think about a possible reduction in key interest rates.
But even at the US Federal Reserve there is still disagreement about the future course: While Fed Director Christopher Waller had brought interest rate cuts into play in a few months, his colleague Mary Daly contradicts: “I’m not thinking about interest rate cuts at all at the moment,” said the President of the US Federal Reserve District of San Francisco in an interview with the “Börsen-Zeitung”. Instead, she is thinking about whether the Fed is already sufficiently restrictive “to restore price stability.” The latest inflation data were “encouraging” in this regard, but inflation has not yet necessarily been overcome, she said cautiously.
What else will be important in 2024?
Meanwhile, Neil Shearing was clearly cautious about future global growth. He fears that economic growth in most countries in 2024 will be weaker than expected. Specifically, he expects the Eurozone and the UK to underperform compared to the US, as well as structural weakness in China.
In his opinion, an important issue will be elections around the world – from the USA and Great Britain to Indonesia and India. They could increase short-term volatility on the financial markets in 2024.
Editorial team finanzen.net