The economy has been more resilient than many economists forecasted at the start of 2023, particularly in the face of rising interest rates. This has been driven by a number of factors. Fiscal policy has been notably strong. For example, the US government is spending substantially more money than it is taking in. In addition, consumers accumulated a lot of savings during the pandemic lockdowns and have either been spending those savings or offsetting some of the impacts of rising interest rates. We have also seen the unwinding of several extraordinary forces that drove the post-COVID inflation shock. Many people have re-entered the job market and supply chains have recovered a long way.
Many of the same issues that concerned investors in 2023 may linger as headwinds in 2024. The full effect of higher interest rates over the last few years is yet to be felt. Accordingly, central bank activity will be a key focus for markets this year. Although higher interest rates have reduced inflation so far, central banks are cautious about timing. If they cut rates too early inflation could bounce back. So, policy makers face a delicate balancing act – ensuring they don’t ease policy too early, which could fail to control inflation, or too late, which could hurt economic growth.
Geopolitical issues will continue to be a key focus in 2024. The ongoing conflicts in both Ukraine and the Middle East continue without resolution and there are large number of democracies with elections taking place this year. As a longer-term investor, we maintain a medium to longer term outlook as we work to grow members’ savings. And as we navigate the economic and geopolitical uncertainty ahead, our focus will remain on sourcing attractive investment opportunities with long-term value for members.
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