Over-estimating easing

INTEREST rate cuts in advanced economies are likely to gain traction relatively quickly, even with China’s structural challenges deepening. This suggests this easing cycle will be less linear than markets have been pricing.

By the end of 2024, rates in many jurisdictions, particularly the United States, United Kingdom, European Union and New Zealand, are all likely to be meaningfully lower than their recent peaks. The UK has already delivered 25 basis points of easing, the US 50 and EU and New Zealand 75.

Markets are currently pricing extensive and speedy further cuts, which in broad terms involves central banks lowering rates at three-quarters of their meetings and cumulatively and speedily removing a third to a half of the aggressive tightening of 2022 and 2023.