Central banks will not cut rates until 2024, predicts Blackrock

‘In a new regime environment supply constraints will become a more prevalent feature’

THE world’s biggest investor has warned that central banks will not cut interest rates until 2024 as it braces for the four-decade “Great Moderation” to be replaced with a new volatile era.

Blackrock – which manages investments worth $8tn (£7tn) – predicted that decade-long bull runs on markets are a thing of the past as inflation puts central banks on the back foot.

Markets are expecting central banks in the US and UK to begin cutting rates next year in response to the recession. But the investment titan warned that policymakers at the Bank of England and Federal Reserve will not ride to the rescue.

It would mean a long wait for relief for households suffering from high mortgage rates and businesses facing large borrowing costs.

Wei Li, global chief investment strategist for Blackrock, said: “To think that the central banks, specifically the Fed, would immediately start cutting once they bring [rates] to 5pc is highly unlikely … We see rate cuts starting in 2024.”

She added: “We’re also going to leave with higher inflation versus the prepandemic levels and that is not quite priced in by risk assets at this moment.”

Stock markets have endured a tough year as central banks have pushed up interest rates and earnings have been hit by recession. Economists have warned that a multi-decade period of benign inflation is ending, forcing central banks including the Bank of England to take far more aggressive action to tame prices.

Blackrock expects inflation to come down from the current multi-decade highs but persist above central bank targets in the coming years.

“Looking ahead, we also believe that what we have experienced so far, this supply constrained-led burst of inflation, is not going to be a one-off event,” said Ms Li. “In a new regime environment supply constraints will become a more prevalent feature.”

She said geopolitics, ageing populations and the transition to net zero will be key drivers of inflation in the coming years.

Ms Li warned there will be a “long and variable lag” for restrictive levels of monetary policy at central banks to feed through to bring down inflation.