“The steady decrease in the pace of inflation around the world in recent months is encouraging for policymakers,” said Shaan Raithatha, a Vanguard senior economist. “However, should the tensions in the Middle East escalate or continue for an extended period, the risk does increase for an upswing in inflation through higher goods prices, as well as through the potential for energy supply disruption.”
Vanguard expects central banks in developed markets to cut policy interest rates in 2024, though only in the second half of the year. We believe that market expectations for earlier cuts don’t acknowledge the challenges of bringing inflation down that last mile to many central banks’ 2% targets, given stickier wage-related services inflation. The risk of a new advance in goods prices due to protracted geopolitical tensions could give central bankers something else to consider.
The views below are those of the global economics and markets team of Vanguard Investment Strategy Group as of January 18, 2024.