Schroder: Limited Room for Central Banks' Easy Money Policies

Schroders has published a statement saying that their forecast for the global economy remains largely unchanged, with the current expectation being that global economic growth will be 2.7% in 2024 and 2025, slightly lower than the previously predicted 2.8%.

At the same time, they predict that the inflation rate in 2024 will still be 3.1%, and will fall back to 2.5% in 2025, slightly higher than the previously predicted 2.4%.

Schroders stated that the extent to which central banks implement loose monetary policies is unlikely to meet the expectations of financial markets.

Policymakers will prudently reduce interest rates to avoid a second wave of inflation.

Concerns about a U.S. economic recession are overblown, according to Schroders, who believe that financial markets are overly exaggerated in their worries about the U.S. economy entering a recession.

Advertisement

The rise in unemployment is not due to layoffs, but rather because the increase in net immigration exceeds the rate of new job positions.

In addition, the labor market has returned to a more balanced state, and hiring and wage growth should return to a more normal pace.

Considering the further slowdown in inflation and the improvement in credit supply conditions, this will help support robust growth in household consumption and promote overall economic activity in the United States.

The UK's economic growth rate will surpass that of the Eurozone, which is hampered by a sluggish manufacturing sector.

Despite the global commodity cycle warming up, factory output is still far behind the consumer-facing industries.

As manufacturers in other regions perform better, this may reflect a decline in structural competitiveness, prompting a downward revision of the Eurozone's growth forecast for 2025.

In contrast, Schroders has become slightly more optimistic about the UK's economic growth prospects.

Currently, it is expected that the UK's economic growth rate will surpass that of the Eurozone in 2024 and 2025.

However, the supply disruptions in the local economy in recent years show that an acceleration in growth will lead to persistent inflationary pressures.

Policymakers are expected to prudently lower the benchmark interest rate.

The extent to which central banks implement loose monetary policies is unlikely to meet the expectations of financial markets.

Policymakers will prudently reduce interest rates to avoid a second wave of inflation.

Schroders expects that from September 2024, the Federal Reserve will cut interest rates once every quarter, but given the unexpected downward trend in core inflation, there will be an additional rate cut in 2025.

Adjustments to interest rate forecasts for the European Central Bank and the Bank of England reflect that both central banks are expected to cut rates one less time than previously anticipated by the end of 2025.

However, Fed Chairman Powell's remarks at the Jackson Hole meeting were distinctly dovish.

This increases the risk of the Fed implementing a larger than expected rate cut.

These comments also led to a decline in the U.S. dollar, with the U.S. Dollar Index falling about 3.5% since early August.

Fundamental factors suggest that the U.S. dollar may depreciate in the medium term, but financial markets' reduced expectations for a significant rate cut are expected to provide support for the dollar in the short term.