Major central banks held interest rates steady in the fourth quarter. This raised expectations for interest rate reductions in 2024. Read on for our view of the economy and financial markets.
Major central banks held interest rates steady in the fourth quarter. This raised expectations for interest rate reductions in 2024. Read on for our view of the economy and financial markets.
The Bank of Canada (BoC), Fed, European Central Bank (ECB) and Bank of England (BoE) held interest rates steady. The central banks believe their interest rates are high enough to help slow economic activity and bring down inflation.
At its last meeting of the quarter, the Fed took on a positive tone on inflation’s progress. In turn, market participants were likelier to assume interest rate reductions in 2024. This assumption also sent equity markets higher.
The BoC believes it may be too soon to consider reducing interest rates. Expectations will rise in 2024 as they downgrade their outlook for Canada’s economy and inflation.
These central banks are attempting to slow economic activity and inflation without sending their respective economies into a deep recession.
Global equity markets rose.
Global yields fell.
Canada’s economic activity slowed as consumers faced tight financial conditions
Factor |
Outlook |
---|---|
Canadian economy |
A weakening Canadian consumer may continue to weigh on Canada’s economy. Canadians are facing high interest rates and high inflation. The threat of a recession lingers despite avoiding a technical recession. |
Canadian interest rates |
While the BoC noted it may be too soon to discuss reducing interest rates, it may be inevitable in 2024. Inflation is showing clear signs of easing, while economic conditions are weakening. |
Canadian consumer spending |
While the overall spending pattern is trending downward, the holiday season could boost spending. High inflation and borrowing costs affect many households. |
U.S. interest rates |
The Fed’s positive tone on inflation’s slowdown encouraged markets to increase expectations of interest rate cuts in 2024. |
Hoping to spur China’s economy |
The government announced spending and support measures to help its struggling property market. This could help stabilize China’s economy. China has seen positive developments at the end of 2023, such as improving retail sales and faster industrial production growth. |
Commodity prices |
Ongoing geopolitical tensions could challenge commodity markets in 2024. Escalating tensions could hinder oil supply and push up prices. Russia-Ukraine tensions are continuing to impact the production of two critical commodities – grain and oil. |
This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. Plus, this commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of Sun Life. Please note, any future or forward-looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.