MacroResearchBoard

Less Than Expected – August 5, 2024

A just-published report noted that the Fed will soon match most other DM central banks and start lowering its policy rate (the notable expectation being the BoJ). Following Friday’s less than expected U.S. payroll gain, a September rate cut is assured, with another cut or two after the election.

The report provided our outlook for the major developed market central bank policies going forward, and outlined our corresponding investment strategy recommendations. Dovish central banks will keep G7 bond yields anchored at a level that will prove supportive for the global economy. This action will ultimately prove self-limiting as it will help sustain the global economic expansion and prevent inflation from returning to 2% or less.

In the end, the Fed and ECB will cut rates by less than is expected, and the window for these central banks to ease will close by early next year. Thereafter, an unwinding of aggressive rate cut expectations for 2025 will trigger another upleg in bond yields.