British experts assessed the trajectory of interest rate changes

The British Institute for Fiscal Studies (IFS) presented three scenarios for changing rates by leading central banks in 2023–2024: soft, inflationary and recessionary. Each of them depends on how effective the actions already taken by regulators will be. Over the past two years, rates have risen at record rates, but so far this has not led to a sustained slowdown in inflation. One of the scenarios allows for a “soft landing” of the economy: it assumes that the measures taken by central banks were sufficient and inflation will approach targets next year. In the second scenario, experts assume that the efforts were not enough and inflation will continue to rise. The third scenario assumes that central banks were overzealous in tightening monetary policy (MCP).

The first scenario of a “soft landing” assumes that the current tightening of monetary policy was sufficient to combat inflation and that in developed countries it will reach the target in 2024 (the goal of the US Federal Reserve and the ECB is 2%). At the same time, the stability of GDP growth that economies showed in 2022–2023 will remain, which will allow regulators to begin lowering rates next year. IFS experts believe that the prerequisites for the implementation of this scenario are a rapid slowdown in global inflation. According to Haver Analytics and Citi Research, global price growth fell from 9.3% in October 2022 to 6% in June 2023. Prices for transporting goods fell: the Baltic Dry Index, which reflects prices for dry cargo transportation, fell in the summer to the level of 1142 – this is 75% less than the 2022 highs and 15% less than the 2018–2019 averages. Nevertheless, IFS experts note that against the backdrop of geopolitical instability in the world, food prices will remain extremely volatile. Inflationary pressure from energy markets will also continue, largely due to supply disruptions (including the destruction and possible blockage of Russian gas pipelines).