On February 6th, Schroders' Global Head of Multi-Asset Management in Asia, Yu Xueyu, wrote that after more than a year of rate hikes by the Federal Reserve, signs of cooling off have finally appeared in the high inflation, consumption, and fervent labor market in the United States in the fourth quarter of 2023, signaling a slowdown in economic growth. With inflation under control, this will help increase the Fed's space to adjust monetary policy in 2024. Unless there is a sudden "black swan" event, it seems to be the consensus in the financial markets that the US will cut interest rates in 2024. Currently, interest rates and stock prices already reflect the market's expectations of declining US inflation and interest rates in 2024, but the Fed is unlikely to act right away, so investors should not be too optimistic about a rate cut in the first half of 2024. The Fed may start cutting rates in the second half of the year Yu Xueyu believes that investors should keep in mind that the timing and extent of rate cuts still have variables. It is more likely that the Fed will wait until the second half of 2024 to start cutting rates, as policymakers may need more time to observe economic data to determine the trend of inflation, avoid premature rate cuts that could bring back inflation, and cause greater harm to the economy. Furthermore, as the US labor market and consumer power are still at moderate levels, inflation appears under control, reducing the urgency for the Fed to cut rates in the first half of 2024. The Fed does not need to rush to stimulate the economy through rate cuts. Regarding the reasons for the Fed to cut rates in 2024, Yu Xueyu is more inclined to believe that it is due to the cooling of the US economy and inflation, rather than the economy entering a recession. Based on the current economic situation in the US, the fundamentals of the US economy still appear resilient. Schroders' current basic scenario is that the economy is likely to achieve a soft landing, with a higher probability than a hard landing, and believes that the likelihood of an immediate and severe recession is not high. Investors may want to pay attention to companies and asset classes that are expected to benefit from the decline in inflation. Funds are expected to flow back to Asia and emerging markets in 2024 What does a shift in US monetary policy mean for Asia and emerging markets? In the past, the Fed's continuous rate hikes led to a prolonged period of strong US dollar, with capital flows chasing yield towards Europe and the high-interest rate markets in the US, often affecting Asia and emerging markets. As US rates peak, funds are expected to flow back to Asia and emerging markets in 2024. Beware of the "black swan" event Yu Xueyu points out that while looking ahead to economic expectations in 2024, investors should also be cautious of sudden "black swan" events that may occur. Although there are signs of cooling in US economic data, investors should still closely monitor changes in economic data, including whether the labor market and consumer market will suddenly strengthen again, leading the Fed to raise interest rates. In addition, investors should also be aware of geopolitical risks that may trigger a surge in commodity prices in 2024, leading to a resurgence in inflation and undermining expectations of Fed rate cuts. The US presidential election is also a factor worth paying attention to for investors. The ability of US presidents to implement policies will depend on whether they can gain control of the US Congress. A divided US government will be forced to compromise, helping to moderate extreme forces within each party and provide a more stable policy background for investors, potentially supporting the financial markets. The election issue will continue to ferment until the results are announced in November, potentially impacting market conditions. Given that geopolitical risks and the US presidential election are external factors that are difficult to control, investors need to be prepared at all times, from a multi-asset allocation perspective, diversify their portfolios more flexibly, reduce sensitivity to interest rates, and also look at different asset classes in order to effectively navigate inflation and interest rate fluctuations, enhance their ability to deal with volatile market conditions and seize potential opportunities for returns and growth.