Investors reduce bets on interest rate cuts in 2024

According to the Financial Times, investors' optimism about the active reduction of interest rates by the world's leading central banks is decreasing this year.

Recent economic data and statements by representatives of central banks have somewhat cooled the fervor in the market, which overheated and ran too far at the end of last year.

After the US Federal Reserve meeting in December 2023, estimates of interest rate cuts began to outpace the Fed's statements. Now, traders in the swap market predict that the Fed will cut the rate 5-6 times in 2024, rather than 6-7 times, as previously expected. At the same time, they estimate the probability of the first rate cut in March at 75%, while at the end of last year there was almost complete confidence in this.

At the end of 2023, investors raised the likelihood that global central banks would sharply cut rates in 2024, which triggered one of the largest rallies in the global bond market in recent years. This rally was also supported by news of softening inflation and fresh forecasts from Fed officials indicating the possibility of a 75 basis point rate cut in 2024.

However, US employment data released last week weakened the arguments in favor of an early Fed rate cut. In addition, the minutes of the Fed's last meeting painted a more «hawkish» picture than Chairman Jerome Powell's comments at a press conference in December.

As for the European Central Bank (ECB), after the acceleration of inflation in the eurozone and the upward revision of the business activity index, questions began to arise about whether the ECB would cut rates. Recent economic data and inflationary pressures in the region have raised doubts that the European regulator will start cutting rates before June.

In general, analysts predict that the base rate of the Bank of England, which is currently at around 5.25% per annum, will decrease to 4% by the end of this year, although at the end of December this forecast was 3.5%.