US Fed funds target range
June 20245.25%-5.50% (latest level in my training data; may be dated)
RBA cash rate
June 20244.35% (latest level in my training data; may be dated)
US 10-year Treasury yield
June 2024Around 4.2%-4.7% range during parts of 2024; exact spot level may be dated
US CPI inflation
May 2024Roughly 3.3% y/y (may be dated)
US core PCE inflation
May 2024Roughly 2.8% y/y (may be dated)
Australia CPI inflation
Apr 2024Around 3.6% y/y on monthly indicator basis (may be dated)
My knowledge may be dated and I cannot verify live market levels, so point-in-time figures below should be treated as indicative unless independently confirmed. Broadly, the global rates and liquidity regime has shifted from the acute inflation-fighting phase of 2022-2023 into a more uneven late-cycle easing and balance-sheet normalization environment. Policy rates across major developed markets remain restrictive versus the pre-pandemic era, but the direction of travel has increasingly been toward gradual easing where inflation has moderated and growth has softened.
In the US, the Federal Reserve moved rates aggressively higher through 2022-2023, taking the fed funds target to 5.25%-5.50% by mid-2023. Into 2024, the core debate became not whether rates were restrictive, but how long they needed to stay there. The key tension has been between still-sticky services inflation and resilient labor markets on one side, and slowing activity, tighter bank credit, and disinflation in goods on the other. Treasury yields remained volatile because markets repeatedly repriced the timing and magnitude of Fed cuts. Financial conditions therefore loosened and tightened in waves rather than moving in a straight line. At the same time, quantitative tightening continued to drain central bank balance sheets, though the liquidity impact was partly offset by factors such as money market fund allocations, Treasury cash balance changes, and use of reverse repo facilities.
In Australia, the Reserve Bank of Australia also shifted into a restrictive stance, with the cash rate rising to 4.35% by late 2023. The RBA faced a different mix than the Fed: weaker household cash flow due to floating-rate mortgages, still-firm labor conditions, sticky services inflation, and sensitivity to housing and migration dynamics. The result has been a cautious hold bias for longer, with policy calibrated against the risk that inflation returns to target more slowly than hoped. Australian bond yields have therefore remained highly sensitive to both domestic CPI surprises and spillovers from US rates.
Globally, the European Central Bank, Bank of England, Bank of Canada, and several emerging-market central banks have been moving at different speeds, reflecting varying inflation persistence, fiscal settings, and growth momentum. This divergence matters for cross-border liquidity: the world is no longer in a synchronized easing or tightening cycle. China adds another layer, with a relatively looser policy posture aimed at supporting weak property-linked demand and uneven credit transmission, though without the kind of broad-based stimulus seen in earlier cycles.
Near term, the regime is defined by three forces. First, inflation is lower than peak but not uniformly defeated, especially in services. Second, real policy rates are restrictive in many economies because nominal rates have remained elevated while inflation has fallen. Third, aggregate liquidity is being shaped as much by fiscal issuance, term premium, and private credit conditions as by official policy rates alone. For equity sectors including mining and materials, this means financing costs remain above the ultra-cheap levels of the 2010s, the US dollar and real yields continue to matter for commodity pricing, and valuation support from lower discount rates is likely to be uneven rather than immediate.
Base case over the next 6-12 months is for a modest global easing bias, but not a return to zero-rate or broad QE conditions. The most likely path is shallow rate cuts in economies where inflation continues to normalize, while central bank balance sheets either keep shrinking or stabilize rather than re-expand materially. In that scenario, policy becomes less restrictive at the margin, but liquidity remains selective and more expensive than in the post-GFC and pandemic eras.
The main swing factor is inflation persistence, especially in wages and services. If US core inflation proves sticky, the Fed could delay or reduce cuts, keeping real yields elevated and the dollar firmer. A second swing factor is growth resilience: stronger-than-expected labor markets and fiscal support could sustain higher neutral-rate expectations and upward pressure on long-end yields. Third, any credit event, geopolitical shock, or sharper slowdown in China could trigger a faster easing response and a more pronounced liquidity backstop.
Bull case: inflation falls cleanly, central banks gain confidence to ease, term yields decline, and financial conditions loosen without a recession. That would support cyclical equities, commodity demand expectations, and capital-intensive sectors. Bear case: inflation stalls above target or commodity/energy shocks re-accelerate prices, forcing central banks to stay restrictive while growth weakens. That combination would be negative for risk assets, raise discount rates, and tighten financing conditions for highly leveraged or long-duration projects.