Are expectations to be "upended" once again? Economists warn that the main risk for next year lies in inflation rates being higher than anticipated, and the timing of interest rate cuts by major central banks may be delayed until...

High inflation will plague the global economy next year. Among over 200 analysts surveyed by Reuters, three-quarters believe the main risk is that inflation rates will be higher than their expectations, implying that interest rates will remain high for a longer period.

Major central banks still expect to start cutting interest rates before mid-2024, but an increasing number of economists surveyed are adjusting their views, suggesting that the timing for rate cuts is more likely to be postponed to the second half of next year.

Compared to expectations at the beginning of this year, this is a significant change. At that time, some investment banks predicted that the Federal Reserve, which set the tone for many other institutions, would cut interest rates in the fourth quarter of this year.

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Despite widespread success in reducing inflation from high levels, the pace of price increases remains higher than most central banks expected, and achieving inflation targets may be difficult.

The latest survey conducted by Reuters from October 6th to 25th among over 500 analysts shows that in 48 global economies, analysts have downgraded their economic growth forecasts for most of these economies in 2024 and upgraded their inflation forecasts.

However, 75% of respondents indicated that these widely upgraded inflation forecasts face the risk of being too high, with only 57 people believing there is a risk of being too low.

Data released last Thursday showed that the U.S. economy unexpectedly grew by nearly 5% on an annualized basis in the third quarter, highlighting how the strength of the world's largest economy sets it apart from most other economies.

Before the survey results were released, European Central Bank President Christine Lagarde also issued a warning. After the European Central Bank concluded its tenth consecutive policy tightening meeting, Lagarde stated, "It is completely, completely too early to discuss interest rate cuts."

Although many central banks, including the Federal Reserve and the European Central Bank, have talked about "higher for longer" interest rates for most of this year, many economists and financial market traders have been reluctant to accept this view.BMO's Chief Economist, Douglas Porter, stated, "I think we all must keep an open mind, perhaps policy restrictions are not enough. Our forecast is that the Federal Reserve has done enough, and they do not need to raise interest rates further, but I have not ruled out the possibility that we might be wrong, and the Federal Reserve may ultimately have to take more measures."

Although the majority of economists still believe that the Federal Reserve will cut interest rates before the middle of next year, the latest survey shows that only 55% of economists support this assumption, while this proportion exceeded 70% last month.

The Reserve Bank of New Zealand, which usually leads the interest rate cycle, is also predicted to wait until the period of July to September 2024 to cut interest rates.

The proportion of respondents who believe that the central banks of Australia, Indonesia, and India will not cut interest rates before the second half of 2024 is also increasing.

Even the Bank of Japan, which has adhered to ultra-loose policies in this round of inflation, is now expected by economists to abandon negative interest rates next year.

Crucially, the majority of economists unanimously believe that the initial easing measures will not be the beginning of a series of rapid interest rate cuts.

When asked what would prompt the central bank to cut interest rates for the first time, 149 out of 219 respondents (more than two-thirds) indicated that as inflation declines, the central bank will lower interest rates.

The remaining 70 people stated that the first step will mark a shift towards stimulating the economy, indicating that only a minority expect demand to be hit hard enough to make it difficult to support high interest rate policies even with high inflation.

Economists also expect global economic growth to slow from 2.9% this year to 2.6% next year.

"To combat inflation, central banks are currently implementing high interest rates... which will certainly suppress economic activity, and it will take some time for global economic growth to exceed the historical average," said Nathan Sheets, Citigroup's Global Chief Economist.