What to Expect from Interest Rates in 2024 and 2025? The Opportunity Map Nobody Tells You About

The interest rates have not been at such high levels in 15 years, and the market is at a critical inflection point. While the FED maintains its rate at 5.50%, the ECB and the Bank of England are more open to beginning monetary easing. This divergence could be the best news for investors willing to position themselves strategically.

How We Got Here: The Perfect Inflation Storm

Recent history gives us an explosive cocktail. In 2020, the pandemic paralyzed the world. Governments responded with massive injections of money that, while saving economies, ended up saturating the liquidity system. Supply chains collapsed, raw material prices soared from late 2020, and then the Russian invasion of Ukraine occurred. More recently, the conflict in the Middle East added new geopolitical tensions.

The result was inevitable: overall inflation of 9.1% in the United States (June 2022), 10.6% in the European Union, and 11.1% in the United Kingdom. Even Japan, which was battling deflation, reached 4.3%.

Central banks responded in one way only: aggressively raising interest rates. The goal was clear but risky: cool demand, reduce access to credit, and contain prices.

The Turn: Inflation Eases, but Slowly

Did the central banks’ strategy work? Partially yes. Inflation has decreased significantly, but here’s the crux: persistence is the real enemy.

In the United States, core inflation (excluding food and energy) stands at 3.8%, almost double the 2% target. In the European Union, the outlook is more promising at 2.9%. The UK still struggles with 4.2%. This divergence is crucial to understanding the interest rate forecast that is looming.

Meanwhile, economic growth tells a different story depending on the region. The US maintains a robust quarterly annualized GDP (though slowing), while Europe has been nearly stagnant for two years. US unemployment remains below 4%, a strength contrasted by labor deterioration in the UK.

The Question of the Million: When Will Rates Drop?

This is where things get interesting for traders.

United States: The FED is trapped. Inflation is still not under control, and the economy continues to perform well. IMF forecasts suggest that the federal funds rate could stay near a maximum of about 5.40% before eventual late cuts. Optimists talk about a possible reduction toward the end of 2024 if inflation cooperates, but the FED itself projects a median of 4.60% for December, leaving plenty of room for surprises.

European Union: Here lies the real opportunity. Analysts predict that the ECB could start cuts in Q3 2024, initially modest (25 basis points). The 3-month Euribor suggests a drop from the current 4% to 2.6% by the end of 2025. This divergence makes Forex trading shine.

United Kingdom: The Bank of England remains cautious. Although two of its nine members voted to cut rates in May 2024, expectations point to gradual changes only after summer, possibly reaching 4.75% by year-end.

Japan: The Bank of Japan surprised with a historic increase to 0.10% in March but emphasizes caution. Further increases would be limited, with the focus on controlling the yield curve rather than additional hikes.

The Interest Rate Forecast 2024: Reality vs. Hope

The data points to one conclusion: the 2024 interest rate forecast will depend entirely on the next 3-4 months. If inflation does not decline significantly, forget about cuts and prepare for volatility.

Visual Capitalist predicted in early May that the first cut would occur in Q2 for the US and Europe, Q3 for the UK, and Q4 (or simply not happen) for Japan.

2025: The Year of Adjustments

If there is no drastic change in inflation, 2025 will be the year of rebalancing. The FED could bring its rate to an average of 3.60%, the European Union toward 3.3% annually (from 4.50% at the start of the year), and the UK would stabilize around 3.00%-3.40%. Japan will continue adjusting its yield curve cautiously.

The Real Opportunities Markets Are Seeing

While US indices (S&P 500, Dow Jones, NASDAQ) reach all-time highs despite high rates, there are clear windows to make money:

Forex: The EURUSD and GBPUSD pairs offer the best opportunities if the ECB and Bank of England cut rates before the FED. We already see signals: USDJPY appreciated 5.3% since Japan raised rates in March. The divergence in monetary policies is pure gold for traders.

Fixed Income: When rates start to fall (or even if they stay steady), bonds generate significant capital gains. Additionally, in this inflationary environment, recurring flows from public and private fixed income are safe havens.

Real Estate: High borrowing costs have pushed the sector to lows. A rate drop could revive the market, and REITs offer passive income through dividends.

Digital Assets: Bitcoin and Ethereum, which correlate with tech stocks, could benefit from rate cuts if they finally occur. Nvidia’s recent performance (earnings of 26.04 billion versus 24.53 expected) suggests the economic machine still has fuel.

The Risks No One Wants to Mention

Here’s the trap: the 2024 interest rate forecast rests almost entirely on inflation falling. If it doesn’t, markets will abandon hope of cuts and produce brutal corrections.

Obvious investment narratives never work. In 2022, “experts” predicted a recession that never arrived. The US presidential elections in November could change the game entirely: Donald Trump has suggested pushing for immediate cuts, which would contradict FED orthodoxy.

And there’s a deeper historical lesson: between 1940 and 1980, rates rose. Between 1980 and 2020, they fell. Now it’s 2024, and rate cycles last decades. Do you really think central banks can return rates to zero without limits? History suggests not.

Final Advice

Don’t tie yourself to any preset narrative. Whatever the course of interest rates, opportunities will be there for those who can identify them and act with discipline. The market will reward flexibility and rigorous analysis, not obvious bets.