A few outliers may emerge, such as high odds of a rate hike from the Bank of Japan and Australia following suit. However, policy rates are not poised to plunge from their precipice either. Instead, they have more than likely plateaued — extending the “higher for longer” rate environment and making the trajectory of monetary policy for the next few quarters look like a cross-country trek rather than a downhill run.
A key investment theme throughout 2023 was: Get off the sidelines, lighten your cash holdings, and stop waiting for the one perfect moment that might never arrive. This tenet still applies, but for wary investors needing additional clarity, a new observation may help: Both global inflation and central bank tightening have most likely peaked for this cycle.
Over the last year and a half, major global central banks focused entirely on fighting inflation. The US Federal Reserve, European Central Bank and Bank of England each raised policy rates between 450 and 525 bps, from near-zero to multi-decade highs. And while we believe that US inflation has crested, it is still higher than the Fed’s 2% target. Pinpointing how rapidly it falls from here is no simple task, but our analysis suggests further moderation over the course of 2024.
