22 DECEMBER 2023
Table Mountain and the Matterhorn are both famous landmarks, but what else do they have in common?
The answer is they are being used to describe the outlook for interest rates over the next few months.
The Bank of England’s Chief Economist (Huw Pill) recently said his preference is for UK base rates to follow the extended plateau of Cape Town’s stunning mountain peak, which stretches almost 2 miles from end-to-end. What he means is, absent a growth or inflation shock, he expects the target interest rate to stay around its current 5.25% for a considerable period of time.
Another plausible scenario relates to Switzerland’s emblematic Matterhorn, which peaks at 4,478 metres (much higher than Table Mountain’s 1,085 metre elevation) and is characterised by its steep faces. The relevance to monetary policy would be if interest rates are cut as aggressively as they have been hiked over the past 18 months.
The Matterhorn outcome looked extremely unlikely until just a few weeks ago, but the Fed recently surprised markets by suggesting there could be several rate cuts next year. For what it’s worth, over the past 50 years the average period between the last Fed rate hike and the first cut has only been 8 months, which suggests the first cut happens next March.
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