Investors are increasingly confident that the global economy will achieve a “soft landing”, where inflation will decline but global economic activity will not deteriorate significantly in a context of higher interest rates.
In Bank of America’s August Global Fund Manager Survey released on Wednesday, 76% of respondents said a soft landing is the most likely outcome for the global economy over the next 12 months. This marked the highest percentage of respondents projecting such an outcome since May 2023.
Bank of America chief investment strategist Michael Hartnett, who leads the survey, noted that the bet on a soft landing conviction is “driven by expectations of lower interest rates.” In the latest survey, 93% of investors said they foresee lower short-term rates over the next 12 months, marking the highest level of confidence in lower rates in 24 years.
Additionally, 60% of investors expect four or more interest rate cuts this year. This is in line with current market prices, which predict four interest rate cuts in 2024, according to Bloomberg data.
The 585 respondents were interviewed between Aug. 2 and Aug. 8, meaning the survey was conducted after a weak jobs report in July that raised fears of a recession and sent markets into a tailspin. But for the most part, investors’ assessment of the economic narrative was in line with what many economists have argued: a soft landing is still in sight, but Fed rate cuts are needed to get there.
In a weekly note to clients, Morgan Stanley chief global economist Seth Carpenter said he expects the Federal Reserve to cut interest rates by 75 basis points this year.
“The cumulative evidence to date shows a solid job market and a consumer who continues to spend,” Carpenter wrote. “These factors are self-reinforcing and can maintain momentum. The market has eased rates for the Fed, so we just need the Fed to follow our baseline for the soft landing to materialize.”
