Investment Loans Cost To Raise In 2024


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  • Economy. Markets

Investors are betting that the Fed, and other central banks could cut rates.
Investors are betting that the Fed, and other central banks could cut rates. (Archive)

 

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.


ANALYSIS

 

Many investors and executives think the probability of avoiding recession by the US-led economies 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.

 

Most investors are betting that the Fed could cut rates by as much as 1.5 per cent by the end of 2024, but that would still leave policy rates at close to 4 per cent, 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 a host of other risks to the outlook in 2024 — 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.

 

Interest rates underpin everything, from economic growth to the price of financial assets and how much it costs to borrow to buy a car or a house.

Higher rates make riskier assets, such as technology stocks and cryptocurrencies less attractive, as investors can earn a decent return without having to take on much risk.

 

With money harder to come by, riskier bets can fail and bubbles burst, leading to events such as the U.S. regional banking crisis last March. As businesses struggle, they retrench. People lose jobs and new ones get scarce.

 

While the Fed and other central 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. The corporate bankruptcy filings in the U.S. and the West hit the highest since 2020. More are likely on the horizon.

 

 


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Economy. Markets

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The 2024 can hold surprises for traders as the world adjusts to an economic order where money is not cheap.

ℑ   3 min read

Economy. Markets

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The 2024 can hold surprises for traders as the world adjusts to an economic order where money is not cheap.

ℑ   3 min read