Economic Update March 2024

Rate cuts: Not if, but when

A combination of broadly favourable inflation and growth data has seen the ‘immaculate disinflation’ view become consensus in recent months. As inflation loosens its grip, market participants eagerly anticipate easier policy from central banks. This has driven strong risk asset performance, with equities and credit markets seemingly ‘priced for perfection’. The concern is that conservative central banks are willing to risk some economic underperformance to avoid stoking inflation with overzealous easing. In this scenario, we expect the synchronised easing narrative to fragment as each central bank grapples with its own idiosyncratic set of risks. For markets, the risk of disappointment on the policy front is material.