SFC Outlook 2024|Global Monetary Policies: 2024 is a pivotal year for monetary policy

2024年02月12日 19:30   21世纪经济报道 21财经APP   谢鸿州

南方财经全媒体记者谢鸿州 广州报道

Inflation is falling across the world. When will the Federal Reserve and the European Central Bank begin cutting rates? How will the other central banks adjust their monetary policies? And what is the interest rate range in 2024? We have the answers in today's show. 

2024 is a pivotal year for monetary policy 

SFC Markets and Finance: How do you assess the policies of the Fed and the ECB in response to economic conditions?

Brian Coulton: What's happened is the core inflation has come down quite significantly across the U.S., the Eurozone and the U.K.. Now, that's partly because of all the global supply chain pressures that were a big problem in 2021 and 2022. They eased quite significantly in the middle of last year, and we sort of lacked benefit from that in the 2nd half of last year on goods inflation, and we've also seen some declines in services inflation. And I think as that's happened, the central banks have become a lot more confident that they've now raised rates to a level that they think is what they called sufficiently restrictive, policy is tight enough now, they think in order to bring inflation back to target on a sustainable basis over the next 2 to 3 years, get back to their inflation targets. So that's quite an important change.

But what's gone with that change has been a very strong signal from central banks that they're not in any rush to start cutting rates. And so I think what we're going to be looking at is several months from now, in 2024, where the central banks are, debating the outlook and starting to talk about interest rate cuts. But we don't think they're going to get there for a few months. So we do see interest rates coming down across the world economy. In fact, we cover 20 economies in our global economic outlook, and the central banks in 19 of those economies are expected to cut rates this year. It's only the Bank of Japan that we see rates going up. So we do think that there will be a widespread easing of monetary policy. So it is definitely a pivotal year for monetary policy in our view. But we don't think rates are coming down quickly or rapidly.

SFC Markets and Finance: When will the Fed and ECB start cutting rates?

Brian Coulton: So we think the Fed is going to be probably on hold until June or July of this year. So, that's quite a different view to what's priced into financial markets, but that's our view that it will take some time for them to get comfortable with cutting rates. Remember, they've just been through a period of an inflation shock that nobody on the FOMC believed could ever happen again. I mean, there was a very strong view before the pandemic that inflation had been solved as a problem. So to have inflation hit 10% and stay very high for three years, it was a massive shock to policy makers.

So I think, having been through this period, and with services inflation still quite high and quite sticky, and with labor markets still tight, still pressure on wage inflation, which is not coming down fast enough, and it's far too high, I think they're gonna wait for some time, keep rates restrictive for another few months. So we don't see the FED cutting until June or July.

We think the ECB maybe a little bit earlier. And the reason for that is the core inflation improvements in the Eurozone have been even more impressive than in the U.S.. So core inflation has come down quite fast in the Eurozone. So we see the ECB going maybe a little bit earlier, but broadly, we think Q2 for the FED and the ECB. Bank of England, because core inflation is that much higher, we think they'll probably be waiting a bit longer, so probably more like Q3 for the Bank of England.

ASEAN central banks are waiting for the Fed to begin rate cuts

SFC Markets and Finance: We anticipate major central banks to cut rates this year. How soon and how quick you think the Fed, for example, should act? And will that bring positive effects to Asian economies?

Hoe Ee Khor: I think the year ended on a positive note in a sense, most people feel that the U.S. economy has achieved a soft landing. And the Fed came out and said that there will likely be no further rate hikes for the year. So now the expectation is when the Fed is going to reduce the rates. And the market thought that maybe they would start reducing in the second quarter. The expectation is that, more likely, if inflation remains well-behaved, the Fed will start cutting rates maybe in the second half of this year.

But really, even though the Fed has not cut the rate, the interest rates really have come down. If you look at ten-year yield, if you look at the five-year yield, all have come down. It was around the high 4%, between 4.5%~5%, now it's in the low 4%, just above 4%. It even went down to below 4% earlier. Everyone is in a waiting game to see how inflation behaves. So there's a lot of noise, I think you're going to see that kind of bumpy ride.

Going forward, when new data comes out, if it is positive data, the market would rally. So that would be good for (the market). In any case, I think the higher for longer is no longer the baseline. Now, the issue is how soon the Fed is going to cut rate and how quickly rates will come down. I think that changes the setting for central banks in the region too. Because many central banks in the region already peaked and are on hold as well, and they are waiting for the Fed to cut before they move themselves. But some of them may start cutting earlier, because if you look at the inflation dynamics in the region, inflation has come down much faster here than in the U.S. and many of the central banks are ready to cut. But they are holding back because if they cut, there's pressure on the exchange rate. The exchange rate of the countries in the region have already depreciated quite a bit, but because they are depreciating together, it's okay. They don't feel like they are the only one that's getting beaten up by the Fed. 

But certainly, I think they want to prevent the exchange rate from depreciating further or weakening further, because if the exchange rate is too weak, there's a pass-through effect from higher prices of commodities into inflation. It's not a very strong pass-through there, but most of the central banks would rather wait until the Fed cuts before they go along with that. 

Year-end rate will be around 4.5%

SFC Markets and Finance: When do you think the Fed will begin cutting rates?

Paul Gruenwald: Inflation has peaked. So we think policy rates have peaked. The Fed's going to be very careful, because although inflation has fallen, one important part of inflation, which is services inflation, is still about 4 %, well above the target. The Fed doesn't want to make the same mistake as 2021 where they let inflation get too far ahead. So we think they're going to go slow. We have three cuts potential then for this year, but the first one is going to be in the middle of the year. The market seemed to think that it was coming earlier, but the Fed and the ECB have been very clear that they're going to be very patient and wait. So again, as long as the labor market holds up, I think that's a slower reduction in interest rates.

SFC Markets and Finance: What do you think is the interest rate range by the end of 2024?

Paul Gruenwald: We're going to be around 4.5% (in terms of interest rate range). And again, that's the baseline scenario. If we go into a recession, if the labor market really starts to weaken and growth starts to weaken, then the Central Bank will be more aggressive and we'll get more cuts, but the baseline is a gradual and soft-landing slowdown. 4.5% is probably a good range.

The Fed was operating under certain rules

SFC Markets and Finance: To combat high inflation, the Fed became more hawkish in the past year. Do you think the Fed made right decision?

Thomas J. Sargent: So, here's the way I think about it. In many ways, the way to think about the Fed is not just one year or two years at a time. In lots of ways, if you look back 50 years, try to figure out what the Fed was doing, using some machine learning on it and thinking about the statistic, they tend to have rules, and they operate in the same way that it's an institution that has certain ways of doing things.  When the inflation takes off, they're going to raise interest rate. And it's whether (or not) hawkish they're doing it. That's what the whole institution tells them to do, that there's a whole bunch of things. I think what they've done is pretty much on track.

So now that changes your orientation. You might ask when did they do something? Did they deviate from that? And maybe they did a little bit at the beginning of the COVID-19, and you've kind of asked why.

Well, they thought it was a new situation that they hadn't been in their lifetimes. They hadn't been through a big surge like that, and they didn't know what to do, so they maybe deviated. That's the way I look at it.

SFC Markets and Finance: What's your predictions of the Fed policy in 2024? Will they begin to cut rates?

Thomas J. Sargent: One thing that people who participate in capital market know that it's very hard to predict either interest rate or stock prices. And there are mathematical statistical reasons. The basic reason is if I think stock prices are going to go up, and everybody else thinks that they would already make them rise right away. So, the stock prices are a consequence of a whole bunch of people smarter than I am, trying to predict that. And they trade. It's very hard to predict future stock prices, whether they'll go up or down. That's a fact. And the same thing with interest rate. But they are asked to indicate what they think the interest rate that they supposedly set. And they'll actually say, we don't know. But if you turn on an artificially intelligent machine learner, they'd tell you the same thing. It is just very hard to predict.





记者:谢鸿州 周蕊 


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