With peak interest rates in sight, the countdown is on to when the Federal Reserve and other central banks walk markets down the other side of the hill and start cutting rates.
History shows the average lag between last hike and first cut is short but has gotten longer since the 1990s, something investors should bear in mind as the global easing cycle comes closer into view.
That would be a lag of eight months, significantly longer than the average gap between last hike and first cut going back decades. Joe Lavorgna, chief U.S. economist at SMBC Nikko Securities America, noted that the average lag between last hike and first cut over 18 cycles going back to the 1950s is even shorter, at three months.Similarly, a historical sweep of 11 Bank of England policy pivots going back 50 years shows the average lag is six months, according to Reuters calculations. Over the four cycles since the BoE gained independence in 1997, however, it has lengthened to 8.75 months.
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