Forecasting the economic and financial outlook for the coming year is always difficult. In 2020, the surprise came in the form of a global pandemic; in 2022, it was Russia’s invasion of Ukraine. For 2024, the known unknowns come in two categories: economics and politics.
The likely good news comes in the form of falling inflation and the widespread expectation that the Federal Reserve, and other central banks, will start to cut interest rates during the year. Anticipation of this policy shift sparked a strong rally in US equities in November and December, making 2023 the best year for global equities since 2019. The potential downside, however, is that monetary policy has a lagged effect. Some economists worry that the monetary tightening in 2022 and 2023 will have an adverse economic impact in 2024.
So the big issue for 2024 is whether the central banks have got it right. Have they done enough to slow inflation without sending the economy into recession? Alternatively, are inflationary impulses so ingrained that central banks may have to tighten once more over the coming year?