Vanguard Anticipates Elevated Borrowing Costs to Persist Until Late 2024

Wednesday, September 20, 2023 – Vanguard, the mutual fund behemoth managing $8.1 trillion in assets as of August, has projected that the Federal Reserve may need to sustain elevated borrowing costs until late 2024, a timeline that surpasses many current predictions. This outlook was shared by Joseph Davis, Vanguard’s chief global economist and head of the Vanguard Investment Strategy Group.

Davis highlighted an important factor driving this view: a substantial rise in the neutral interest rate since the economic downturn of 2007 to 2009. The neutral interest rate is a crucial benchmark in monetary policy that neither stimulates nor restricts economic growth.

Following a pause in its rate-hiking cycle on Wednesday, Davis suggested that the Federal Reserve might need to implement one to three additional increases. This could imply that the central bank’s monetary policy will remain tighter for a longer duration than many expect, with high borrowing costs likely to be maintained for an extended period.

These insights from Vanguard, a prominent actor in the mutual fund industry, emphasize the continued scrutiny of central bank policies. The focus is particularly on interest rates and their influence on economic conditions.

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