As majority of central banks are on a pause and inflation throughout the world has eased since last year. The start of next year would be witnessing various levels of uncertainty. Within this, an additional uncertainty will be the direction of monetary and fiscal policy.
On the monetary policy front, the markets are already factoring in a rate cut from May 2024 despite the members pushing against it. The main worry is that what if the inflation spikes again and they have to be increased? Thus, an early cut might be hasty to do.
On the fiscal policy, many counties are running schemes to provide relief to citizens from higher energy or food prices. Some other countries are offering cash to boost growth. This means that one way or another the economy is still receiving support. But when and what will be the consequence of stopping this?
Given that in 2024, 50% of the world’s population will be voting in their respective national elections. It is unlikely that any central bank or government would be in a haste to take an action that might result in a knee-jerk reaction.
This increases the probability a soft landing but since financial markets are high with optimism the reaction might seem to be of a hard landing.
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