What Can We Expect If US Asset Manager Vanguard Predicts No Fed Interest Rate Reductions in 2024?
One of the leading US asset managers, Vanguard, has surprised observers by forecasting that the Federal Reserve will not lower interest rates in 2024. In contrast, the Federal Reserve’s own predictions indicate that by year’s end, there will be three quarter-percentage point decreases.
It was expected that the Federal Reserve would decide to keep interest rates where they are for the fifth straight year, which is between 5.25% and 5.5%. Nonetheless, the central bank’s pledge to consider three rate reductions this year spurred an increase in world markets. The news caused the three main US stock market indexes to rocket to all-time highs, while the pan-European Stoxx 600, encouraged by the possibility of further rate cuts, too set a new high in Europe.
Vanguard is still pessimistic, even if market performance is optimistic. Senior economist Shaan Raithatha of Vanguard explained the company’s base case, which calls for no rate reductions from the Federal Reserve by 2024. This difference in perspective may have important ramifications for international markets as well as central banks.
Support for Vanguard’s stance extends beyond its own analysis. According to the CNBC Fed Survey, economists still predict that the Fed will decrease interest rates three times on average in 2024. Vanguard’s contrarian approach, however, points to a difference in market expectations, which forces investors to reevaluate their plans.
The markets were rocked by the surprise move by the Swiss National Bank to decrease its main policy rate by 0.25 percentage points to 1.5%, making Switzerland the first large country to do so. This action demonstrates the increasing confidence of authorities in addressing inflation, a major worry in the recent past.
The decision by the Swiss National Bank caused the euro to slightly decline, closing at $1.0909 on Thursday morning in London, down 0.1%. The interdependence of world markets and the cascading impacts of central bank policy actions are reflected in this adjustment.
Vanguard anticipates further monetary policy actions by the European Central Bank (ECB) in the future. Vanguard anticipates the ECB imposing four to six rate cuts this year, according to Raithatha. Significant changes in European monetary policy are expected, as the ECB is expected to lower interest rates for the first time in June after keeping them constant earlier in the month.
The difference in projections between consensus and Vanguard highlights the ambiguity surrounding central bank actions and how they affect international markets. Investors need to be alert and flexible in response to shifting market conditions as they traverse this terrain.
*With contributions from CNBC*
