For Investors, 2024 is Year of Transition to a New Economic Order

Investors appear convinced that major Western central banks are close to a much awaited pivot, from raising interest rates to cutting them. Markets rallied as a result, but 2024 could hold surprises as the world adjusts to an economic order where money is not cheap.
In the United States, investors are now effectively positioned for the Federal Reserve, guiding the economy to a perfect landing, bringing down inflation without triggering a recession. The market's conviction comes after the U.S. economy surprised people with its resilience. However, many investors and executives think the probability of a perfect landing is low. The pandemic-era savings are getting depleted and storm clouds are gathering, especially with what's shaping to be contentious U.S. elections.
Investors are betting that the Fed could cut rates by as much as 1.5% by the end of 2024, but that would still leave policy rates at close to 4%, higher than where it has been for most of the past two decades. At that level, monetary policy will still be a drag on growth, as it would be above the so-called neutral rate at which the economy neither expands nor contracts.
Add to that, there are a host of other risks to the outlook in 2024, including two major wars, heightened geopolitical tensions that have put globalization firmly in reverse, and elections in several countries that could radically change the world order in unexpected ways. While the Fed and other banks have been raising rates for well over a year, the world is yet to complete the transition from the time when money was free to a period when it no longer is. 2024 is likely to be the year when the effects of that transition manifest more clearly.
That means companies and, in some cases, entire countries will have to restructure their debt liabilities, as they can no longer afford to pay interest. Some of that is already visible in emerging market debt negotiations and rising bankruptcies of companies.

(Source: Reuters)