Fed’s plan to cut rates will be shaped by geopolitics, and investors should take note

Every year Eurasia Group releases its annual Top Risks report, highlighting the ten biggest geopolitical threats to the world in the year ahead. Coming in at number 8 is persistent inflation and high interest rates – with the firm predicting that these factors will continue to be a political and economic drag in 2024. Ian Bremmer, president and founder, Eurasia Group joined TheStreet to discuss how investors can prepare.

Full Video Transcript Below:

SARA SILVERSTEIN: One of your top risks are high rates driven by inflation, which not everybody is expecting, which might make it more dangerous. Can you talk a little bit about that and what can investors do?

IAN BREMMER: It’s a relatively low risk because we’re not talking about a recessionary environment. We’re talking about inflation being higher for longer than the markets are presently pricing in. There’s an enormous expectation on the part of the markets that interest rates are coming down dramatically. The Fed’s going to do a lot of lowering over the course of 2024. We think that that’s too much. We think it’s going to be less than the markets expect. 

And a big part of the reason for that is the level of geopolitical uncertainty and the implications for the markets. The supply chain challenges when the Middle East war expands the challenges on the markets for energy for example, when Ukraine increasingly starts hitting critical energy infrastructure in Russia because there’s no way for them to take land back but they’re getting more desperate and they’ve got the drones and the missiles. Those sorts of things. Not to mention el nino. And yet again, the warmest year on record with economic implications and insurance implications as all of that climate change and high impact weather stress events plays through in countries around the world, those things are not priced in when you look at how much the markets expect interest rates to come down, that is a consequence as a consequence, a risk for the marketplace. 

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