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The Federal Reserve slashing interest rates by 200 basis points and oil prices crashing by more than 50% are among potential economic and financial surprises that could roil markets this year, according to Standard Chartered.
One scenario would see the Fed cut interest rates by 200 basis points, after the US suffers a severe recession in the first half of next year in the wake of its ongoing monetary tightening spree.
But there’s a chance it will have to quickly pivot to monetary easing if economic data suggests it tightened too quickly, according to Standard Chartered.
“A pause quickly becomes a pivot, which then becomes a full-scale reversal by mid-year,” they added. “The Federal Open Market Committee halts QT and cuts rates by 200 basis points before the end of 2023.”
In a separate scenario that would rattle markets, Brent oil prices could plummet to just $40 a barrel as demand slumps amid a recession, according to Standard Chartered. A resolution to the Russia-Ukraine conflict would also remove the war-related risk premium from energy costs, causing prices to fall.
The crude benchmark currently trades at just over $80 a barrel, so a slide to $40 would mean a 50% decline.
The convergence of a global recession, continued zero-COVID lockdowns in China and a ceasefire in Ukraine would unleash the “perfect storm” for oil markets, sparking outsized declines in prices, according to the bank.
Cryptocurrencies could suffer again in 2023, with one of Standard Chartered’s upsets seeing bitcoin fall a further 70% to just $5,000 – with the largest token by market capitalization already losing 64% of its value this year.
