For investors, 2024 will be the year of the transition to a new economic order.

Investors seem convinced that major Western central banks are close to a long-awaited pivot from raising to cutting interest rates. Markets have rallied as a result, but 2024 could hold surprises as the world adjusts to an economic order where money is not cheap.

Despite the concerns about the manufacturing sector, the global stock market rallied in recent weeks. The top government bond yields also fell. This indicates that investors are now more confident that the US Federal Reserve will be able to guide the country’s economy to a ‘perfect landing’.

The rally in the stock market was attributed to the belief that the US economy was resilient despite the various concerns that it faced. This was also supported by the country’s attractiveness as an investment destination. According to a former Fed official, the central bank has been able to manage soft landings more often than previously believed.

But many investors and executives see little chance of that happening. Pandemic-era savings are being depleted and storm clouds are gathering, especially with what’s shaping up to be a contentious U.S. election.

Investors are betting that the Fed could cut rates by as much as 1.5% by the end of 2024, but that would still leave the federal funds rate near 4%, higher than it has been for most of the past two decades. At that level, monetary policy will still be a drag on growth because it would be above the so-called neutral rate at which the economy neither expands nor contracts.

There are also a host of other risks to the 2024 outlook-two major wars, heightened geopolitical tensions that have put globalization firmly in reverse, and elections in several countries that could radically alter the world order in unexpected ways.

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

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

With money harder to come by, riskier bets can fail and bubbles can burst, leading to events like the regional banking crisis in the U.S. last March. As companies struggle, they cut back. People lose their jobs and new ones become scarce.

Outlook for 2024 

The Federal Reserve and other central banks have been steadily raising interest rates over the past year, but the world still hasn’t reached the point where money can no longer be freely used. In 2024, the effects of this transition are likely to become more apparent. This means that companies and governments will have to start restructuring their debts.

There are signs that the economic recovery is starting to slow down, such as the rising number of corporate bankruptcies and the increasing number of bond negotiations. In addition, the commercial real estate sector, which has been hit hard by the post-pandemic recovery, will feel more pain.

As the signs of a recovery in the commercial real estate sector continue to emerge, more landlords will have to reassess their properties and give up their ownership. This will cause losses to flow through to investors and banks. While savings may yield more, rising borrowing costs will have to be considered for consumers.

Most Americans have low interest rates on their mortgages, and people will have to come up with a way to live with higher rates. For instance, people with 30-year mortgages would have to come up with a budget that takes into account the interest rate that’s more than twice as high.