The shift to lower interest rates globally has commenced in June with several central banks lowering their key interest rate. The drop was small, only a quarter point, but it signals that the move to easing interest rates has begun.
The move to lower interest rates should be much slower than the speed with which interest rates increased over the past two years. In my view, it will take up to two years before interest rates are in a neutral position, usually viewed as around 3.0%, give or take up to half a percentage point.
Based on this neutral rate, interest rates should drop between 2.0% to 2.5% in many countries over the next few years. In the US, I expect the FED (Federal Reserve Board) to start to cut interest in late 2024, probably in its December 2024 meeting.
Lower interest rates are usually good for stocks and bonds, and I expect this will play out again but at a slower pace. In economic theory, it takes interest rate moves around nine to twelve months to fully have an affect on a country’s economy.
Stock and bond markets anticipate economic activity up to six months, so if lower interest rates start to have some positive economic benefit as we go through 2025 into 2026, then stock markets should start pricing in the improving global economy later this year and into the first two quarters of 2025.
In summary, I expect the next few months to trade mostly sideways. As we go through the fourth quarter of 2024 and into 2025, I see both stocks and bonds having a good rally as investors price in the benefits of lower interest rates over the next couple of years.
If you have any questions or concerns, please feel free to contact me.
Best regards,
Bill Achtymichuk, CIM®, FCSI®, CFP®
Portfolio Manager / Senior Wealth Advisor
iA Private Wealth | Active Wealth Partners
Insurance Advisor| iA Private Wealth Insurance*
5470 Calgary Trail NW, Suite 202
Edmonton AB, T6H 4J8
T: 780-944-2690
F: 780-413-4497
TF: 800-474-2690
bachtymichuk@activewealthpartners.com
www.activewealthpartners.com | www.iaprivatewealth.ca