Key points

  • Underlying US economic growth was stronger than the headline reading, with private domestic demand still resilient.
  • The euro area economy grew in the first quarter of 2024, signalling an end to the recession.
  • A strengthening of the UK economy has led us to raise our full-year growth expectations for the country.
  • Mixed signals in China suggest the economic rebound observed in the first quarter of 2024 may be fragile.

Continued economic resilience in the US, stronger momentum in the euro area and a rebound in the UK raise questions about the path to rate cuts.

United States

Based on the latest economic data, our outlook remains that the Federal Reserve (Fed) is unlikely to reduce interest rates in 2024, reflecting the robustness of the economy. The US central bank left its federal funds rate target range of 5.25%-5.5% unchanged at its 1 May meeting.

The Consumer Price Index, a key measure of inflation, rose 3.4% in the 12 months to April and 0.3% month-over-month from March. Core inflation, which strips out volatile food and energy prices, remained high at 3.6% in the 12 months to April. The data met broad expectations and provide further evidence that inflation isn’t yet on a sustainable path toward the Fed’s 2% target.

US GDP growth slowed to an annualised rate of 1.6% in the first quarter of 2024, down from 3.4% in the previous quarter, according to the Bureau of Economic Analysis. Despite this deceleration, underlying economic drivers such as consumer spending and business investment were strong during the period. We maintain our projection that the US economy will grow at a slightly above-trend rate of around 2% in 2024. The labour market cooled slightly in April albeit with 175,000 new jobs created, indicating a still-healthy jobs market.

Euro area

Stronger growth momentum, higher energy prices and a more hawkish outlook for the Fed have led us to raise our year-end interest rate outlook for the European Central Bank (ECB). We foresee three ECB quarter-point rate cuts this year, down from our previous outlook for five such cuts, leaving the central bank’s key deposit facility rate at 3.25% by 2024 year-end.

The ECB maintained its key deposit facility rate at 4% in April but indicated that a rate cut might be on the horizon, possibly at its 6 June meeting. The euro area economy has shown signs of recovery from a brief downturn, with GDP growth of 0.3% in the first quarter of 2024 over the previous quarter, signalling an end to the recession.

Headline inflation remained steady at 2.4% in the 12 months to April. Core inflation, which excludes volatile items like food and energy, slowed to 2.7% in the year to April from 2.9% in March. Vanguard expects a gradual decrease in core inflation to 2.2% by the end of 2024.

The unemployment rate held steady at a record low of 6.5% in March. The ECB anticipates the unemployment rate will remain around current levels to the end of the year, but we believe the labour market is softer than the data suggest.


Recent economic indicators show a strengthening UK economy and a firming of inflation, leading Vanguard to increase its outlook for 2024 growth from 0.3% to 0.7%. We have also raised our outlook for year-end core inflation from 2.6% to 2.8%.

We continue to believe that the Bank of England (BOE) will cut interest rates at its August meeting, but, amid the outlook for higher interest rates globally, we have scaled back our expectations for the depth of cuts this year. We expect two quarter-point cuts this year, bringing the bank rate to 4.75% by year-end, and a further four quarter-point cuts to 3.75% by the end of 2025.

The Office for National Statistics (ONS) confirmed that the UK economy has rebounded from a brief recession, with GDP growing by 0.6% in the first quarter of 2024 after contracting in the latter half of 2023.

Headline inflation was 3.2% in the 12 months to March, a slight decrease from 3.4% in February, according to the ONS. Core inflation, which excludes volatile items such as food, energy, alcohol and tobacco, increased by 4.2% in the 12 months to March, down from 4.5% in February.


Concerns about the resilience of China’s economic rebound remain despite robust first-quarter GDP growth of 5.3% relative to the same period in 2023. Other economic indicators suggest potential challenges ahead.

Total social financing, a broad measure of credit demand, declined by 200 billion yuan in April, marking the first negative reading since its inception in 2002. This downturn in credit data underscores the fragility of China’s economic recovery, with weak private demand and ongoing pressures in the property sector.

The government is responding by planning to issue 1 trillion yuan in special long-term treasury bonds, reminiscent of measures taken during past economic crises. This move aims to stimulate the economy but also highlights the risk of continued structural imbalances, as the focus remains on investment and manufacturing rather than boosting consumer spending directly.

The People's Bank of China (PBOC) has kept its key policy rate steady at 2.5%, but with inflation remaining low, there is anticipation in markets of a potential easing to 2.2% within the year, alongside reductions in banks' reserve requirement ratios. However, we expect any easing in the near-term to be marginal.

The points above represent the house view of the Vanguard Investment Strategy Group’s (ISG’s) global economics and markets team as at 16 May 2024.

Asset-class return outlook

Vanguard has updated its 10-year annualised outlooks for broad asset class returns through the most recent running of the Vanguard Capital Markets Model® (VCMM), based on data as at 31 March 2024.

Our 10-year annualised nominal return projections, expressed for local investors in local currencies, are as follows1.

The figures are based on a 2-point range around the 50th percentile of the distribution of return outcomes for equities and a 1-point range around the 50th percentile for fixed income. Numbers in parentheses reflect median volatility.



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IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time. The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include US and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, US money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.

Important information

For professional investors only (as defined under the MiFID II Directive) investing for their own account (including management companies (fund of funds) and professional clients investing on behalf of their discretionary clients). In Switzerland for professional investors only. Not to be distributed to the public.

The information contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

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