Multi-Asset Investing in a Post-Peak Rate Climate

Rate cuts don’t happen in a vacuum—staying nimble with asset allocation can help investors adapt.

Although inflation continues to wane in most global economies, it could be some time before monetary policy easing starts in earnest. Still, interest rates have probably peaked—it’s now just a question of when rate cuts will start.

The economic backdrop for rate cuts matters too. Monetary policy easing can happen in two possible climates, recession or growth, and in recent decades those climates have prevailed with pretty much equal frequency—particularly in the US. For example, in the seven Federal Reserve easing cycles since 1990, four were linked to recessions and three to relatively healthy economies (Display 1).

With Rates Near Peak, Cuts Are Likely—but in What Economic Conditions

What outcome will we see this time? For much of 2023, recession dominated expectations; recently, the view has shifted to slow growth for 2024. Consensus expectations don’t necessarily play out, but the underlying economic regime when rate cuts happen has made a big difference in performance patterns across asset types. We think multi-asset investors should be ready to adapt to either scenario.