Investment Viewpoint: central banks in focus

Written by Bernard Swords, Chief Investment Officer, and Elizabeth Geoghegan, Head of Fixed Income Strategy

25 March 2024

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Equity markets with Bernard Swords, Chief Investment Officer

The Federal Reserve’s (Fed’s) policy meeting took centre stage last week. What were the key takeaways and how did equity markets react?

  • The outcome of the Fed policy meeting, which included an update on its economic projections, was better than expected.
  • There was no change in interest rates but there was some relief that the governors’ interest rate projections (‘the dot plot’) did not change either. 
  • The median expectation remains for three cuts this year in line with where market projections had moved. Economic growth forecasts were increased for 2024 and 2025 but there was no resultant change in inflation projections.
  • The stronger growth we are seeing is supple side driven. Fed Chair Powell did acknowledge the stronger inflation data we had over the last couple of months but said it did change the ‘story’, a bumpy journey down in inflation towards target. 
  • The Fed seem set for the start of easing in June with the first interest rate cut. 
  • The message from the Fed meeting was a turning point for equity market last week. There was a fear that it could indicate a later start to the interest rate cutting cycle but as it turned out the timetable seems to be left unchanged. 
  • However, the combination of interest rates declining, and economic growth decelerating modestly gave a lift to both the cyclical and interest rate-sensitive sectors. 
  • Structural growth sectors are still leading the performance: that includes, IT; Communication Services and Consumer Discretionary (driven by Google). Growth may be more robust, but it is coming from narrow parts of the economy.

Fixed Income with Elizabeth Geoghegan, Head of Fixed Income Strategy

Other central banks also met last week. Can you talk us through the key moves in fixed income markets last week and how this impacts our strategy? 

  • Last week, the Bank of Japan exited negative interest rate territory for the first time since 2016. 
  • The move didn’t have a stellar impact on bond yields, however where it did impact FX markets – the yen deappreciated by almost 1.5% last week. Japanese equities also gained as the moves by the FOMC, which we’ve mentioned above, were seen as an affirmation of a reflationary Japanese economy.
  • Back home, Taoiseach Leo Varadkar resigned. Oftentimes a country’s political situation can have an impact on the performance of bond markets. 
  • However, there were limited moves in Irish bond spreads following his announcement. This isn’t hugely surprising however as Ireland remains a highly rated sovereign with an incredibly healthy fiscal surplus which plays a really significant role in terms of the risk profile of the sovereign.
  • In terms of our fixed income strategy, the impact of the FOMC statement was two-fold. On one hand, the fact that cuts are in, and central bankers reiterated more dovish commentary is supportive for longer duration assets. 
  • On the other hand, growth is holding up, and was slightly upgraded in the case of the FOMC, which is supportive for credit assets. 
  • The economy is holding up in a way that is supportive for credit whilst the inflation trajectory, although showing some upside surprises, is still moving in a downward trend which is supportive for rate cuts and government bonds.
  • The Bank of Japan’s actions also benefitted our strategy last week as some of our active managers are positively exposed to and set to benefit from increased Japanese interest rates or yen depreciation.

The week ahead: what to watch out for


It’s a holiday-shortened and data light week. In the US, consumer data will be in focus as we get the total consumption for the month of February and an update on the PCE price index. The PCE price index has been painting a better inflation picture and it will be interesting to see if that trend continues. Retail sales reports have been softer than expected recently but the measure is goods oriented. The consumption data will give us some indication of whether the softness is broader. 
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