Central Banks and the Stock Market: Navigating Uncertain Waters in 2024
In 2024, the stock market is expected to be heavily influenced by monetary policy, with the American Federal Reserve Bank being a key determinant. Since the onset of the Covid pandemic, central banks have been navigating through uncertain territory, with many unsure of how things will unfold in the future. The decisions made by central banks, particularly the Fed, are closely watched by professional investors.
According to a survey conducted by Bank of America, 52 percent of investment fund managers believe that the Fed will have the greatest impact on stock prices in 2024, as opposed to only 33 percent who feel that company profits will be the main driver of prices. John Plassard, a prominent investment specialist at Bank Mirabaud, also sees the current biggest risk for financial markets as being wrong monetary policy decisions.
The Fed’s handling of inflation has been a point of contention, with initial assessments of inflation being deemed “temporary” leading to subsequent interest rate hikes. The uncertainty in the markets is further exacerbated by the lack of reliable data post-Covid, making it challenging for central bankers to make informed decisions. Inflation has recently risen to 2.7 percent in March, prompting the Fed to hold interest rates steady for the time being.
Despite the uncertainties surrounding monetary policy, some investment experts are even considering the possibility of a take-off scenario, where economic growth picks up again despite ongoing monetary policy interventions. Fed Chairman Jerome Powell has emphasized the need for convincing evidence before considering further interest rate hikes, indicating a cautious approach to monetary policy.
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