Goldman Sachs: "Four Interest Rate Cuts in the US Starting March This Year"

"March Rate Hike Still Valid"
Inflation Expected to Reach Fed Target
Risk Assets Rally Continues This Year
"Turkish and Chinese Stock Markets Promising"

Global investment bank (IB) Goldman Sachs forecasted that the US interest rate cuts will begin in March this year and occur a total of four times within the year.

[Image source=Yonhap News]

On the 22nd (local time), Joshua Shifrin, Goldman Sachs’ Global Trading Strategy Head, wrote this in a client memo titled “10 Predictions for 2024” and stated, “We expect the central banks of the European Union (EU) and the United Kingdom to follow this trend.” However, Japan, which maintains a ‘negative interest rate policy,’ is expected to raise rates starting in April, diverging from the global monetary policy decisions in March. Shifrin is known as the figure who correctly predicted a soft landing for the US economy last year, while most Wall Street experts were betting on a recession.

Recently, some on Wall Street have speculated that due to the continued hawkish (preference for monetary tightening) remarks from global economic leaders, the timing of the US rate cuts may be pushed back beyond March. According to a Bloomberg survey of bond traders, the probability of a rate cut at the March Federal Open Market Committee (FOMC) meeting has dropped from 90% in December last year to 40% recently.

In response, Shifrin emphasized, “We still place significant expectations on the Fed cutting rates in March.” He said, “If the economy truly weakens, the timing of rate cuts could be gradually delayed,” but added, “The Fed likely recognizes that there is an advantage to cutting rates sooner.” He predicted the largest rate cut this year to be 100 basis points (1bp = 0.01 percentage points).

He expects inflation to reach the Fed’s target of 2%. While there are concerns that maritime logistics disruptions caused by Houthi rebels attacking global shipping in the Red Sea could fuel inflation, Shifrin believes this will have a limited impact on product price increases. He stated, “If inflation reaches 2% this year, the Fed is likely to revise next year’s target range to 1.5?2.5%.”

He also analyzed that risky assets such as stocks could still provide profitability to investors this year. However, he warned, “There could be high volatility in the first half of the year (including the US stock market) due to significant differences in views between the market and the Fed regarding the timing and pace of rate cuts.”

Therefore, he advised considering other countries’ stock markets as a hedge (risk avoidance) strategy in the first half of the year. He cited emerging markets such as Turkey and the Chinese stock market as examples. Notably, despite the ongoing ‘sell China’ trend at the beginning of the year, Shifrin’s bet on ‘long China’ this year is eye-catching. The CSI300 index, which fell 11% last year, has dropped another 5% this year. The Hong Kong Hang Seng Index has plunged 10% since the start of the year. He evaluated, “Chinese stocks will have a good year and surprise everyone,” adding, “There has been too much bearishness so far.”