Investors are increasingly confident that the global economy will achieve a “soft landing” — meaning inflation will subside but overall economic activity will not deteriorate significantly even as interest rates rise.
Bank of America’s August Global Fund Manager Survey, released Wednesday, found that 76% of respondents said the world economy is most likely to experience a soft landing over the next 12 months, the highest percentage of respondents predicting such an outcome going back since May 2023.
The bet on a soft landing is “driven by expectations of lower interest rates,” said Michael Hartnett, chief investment strategist at Bank of America, which conducted the survey. The latest survey showed that 93% of investors expect short-term interest rates to fall in the next 12 months, the highest confidence in lower interest rates in the past 24 years.
Additionally, 60% of investors expect four or more rate cuts this year, which is in line with current market expectations of four rate cuts in 2024, according to Bloomberg data.
The 585 respondents were surveyed between Aug. 2 and Aug. 8, meaning the survey was conducted after weak July jobs data sparked recession fears and a sharp market selloff. But broadly, investors’ assessment of the state of the economy is in line with what many economists have been saying: a soft landing is still in sight, but getting there will require Fed rate cuts.
Morgan Stanley chief global economist Seth Carpenter said in a weekly note to clients that he expects the Federal Reserve to cut interest rates by 75 basis points this year.
“The cumulative evidence to date points to a strong job market and consumers who continue to spend,” Carpenter wrote. “These factors are mutually reinforcing and are likely to maintain momentum. The market is easing the Fed’s interest rates, and the Fed only needs to adhere to its baseline for a soft landing to occur.”
