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Investing.com – Higher inflation is expected to haunt the global economy next year, with three-quarters of more than 200 economists polled by Reuters saying the main risk is that inflation will rise higher than they expected – a nightmare that the Fed does not hope will happen. This means that interest rates will also remain high for a longer period.
Many central banks are still expected to start cutting interest rates by mid-2024, but a growing number of economists surveyed have revised their views, making the most likely date the second half of next year.
It is noteworthy that this is a significant change from expectations compared to those at the beginning of this year. At the time, some investment banks were expecting the bank, which sets the course of monetary policy for many other banks, to cut at the moment.
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High interest for a longer period
Despite widespread success in bringing inflation down from its highs — which is easier — prices are still rising faster than most central banks would prefer, and meeting their inflation targets is likely to be difficult.
The latest Reuters poll of more than 500 economists, conducted between October 6 and October 25, forecast lower growth for 2024 and higher inflation for the majority of the 48 economies around the world surveyed.
The results follow news on Thursday that the U.S. economy unexpectedly grew nearly 5%, annually, in the third quarter, underscoring the strength of the world’s largest economy compared to most of its peers.
The poll results also follow a warning from ECB President Christine Lagarde, who said after the ECB halted interest rate hikes after they had continued for 10 meetings, that “discussing rate cuts is premature.”
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While many central banks, including the Federal Reserve and the European Central Bank, have been adopting a “higher for longer” narrative on interest rates for much of this year, many economists and financial market traders have been reluctant to accept that view. .
“Our expectation is that the Fed has done enough and will not have to raise rates further, but I have not ruled out the possibility that we are wrong and the Fed will ultimately have to do more,” said Douglas Porter, chief economist at BMO.
While most economists still say the Fed will cut interest rates by mid-year, the latest poll shows just 55% support that scenario compared to more than 70% last month.
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Other central banks
The Reserve Bank of New Zealand is also expected to wait until July-September 2024 before cutting rates.
The majority supporting no cuts until the second half of 2024 has increased significantly, with respect to the Reserve Bank of Australia, Bank Indonesia and the Reserve Bank of India.
Even the Bank of Japan, which has stuck to an ultra-loose policy throughout this entire round of inflation, is now expected to abandon negative interest rates next year.
Importantly, most economists agree that the first easing steps will not be the beginning of a rapid series of cuts.
Global economic growth is expected to slow to 2.6% next year from 2.9% expected this year.
“Central banks have high interest rates in order to combat inflation… They are certainly constraining activity, and it will take some time before we achieve global growth above its historical average,” said Nathan Sheets, chief global economist at Citi.
2023-10-30 09:09:00
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