March 22, 2024

Federal Reserve Rate Cuts on the Horizon

As U.S. core inflation shows signs of rebound after a significant dip in 2023, financial experts at Goldman Sachs anticipate imminent rate cuts from the Federal Reserve. The inflation forecast for Q4 2024 has been adjusted back to 2.4% from its previous downtrend. Goldman Sachs analysts predict that the economy will avoid recession and return to 2% inflation in a ‘soft landing.’ They attribute this forecast to the easing of supply-demand imbalances in the economy, reinforced by recent growth and employment data..

Increased Immigration Fuels Labor Market Rebalance

Goldman Sachs analysts point to a surge in immigration as key to a smooth labor market rebalance, despite robust GDP growth and rapid payroll gains. Net immigration in the previous year was estimated to be approximately 1.5 million people above the long-term trend, contributing to growing U.S. GDP and explaining the recent increase in the unemployment rate from 3.4% (April 2023) to 3.9% (February 2024).

Rate Cuts Expected from Global Central Banks

Experts at Goldman Sachs expect the Fed and other major global central banks, including the European Central Bank, Bank of England, and Bank of Canada, to start cutting rates as early as June. Meanwhile, the Bank of Japan seems set to end its negative interest rate policy soon, although Goldman’s long-term outlook on its policy stance remains dovish, given the contraction in Japan’s GDP in the latter half of 2023.

Maritime Shipping Risks on the Rise

Maritime shipping, a crucial part of global trade, faces increasing risk due to geopolitical and climate-related challenges. Experts point to heightened competition among global powers and threats to critical undersea infrastructure as significant factors. Admiral James Stavridis, a retired four-star U.S. naval officer, shares this sentiment and calls for global coalitions to protect maritime interests and ensure free transit on international waters.

Dollar As Potential Portfolio Hedge

Christian Mueller-Glissmann, head of asset allocation research within the portfolio strategy at Goldman Sachs, suggests the U.S. dollar could prove a valuable addition to 60/40 portfolios for investors concerned about the risk of stocks and bonds declining simultaneously. He posits that the rising correlation between stocks and bonds since the pandemic has heightened the risk, making the dollar an attractive hedge, particularly in the event of high U.S. rates or a global economic slowdown.

D.Solomon: U.S. Economy Demonstrates Resilience

Reflecting on economic resilience, Goldman Sachs’ CEO David Solomon, in his letter to shareholders, highlights several key issues from client conversations. Despite rapid fiscal tightening after years of monetary easing, the U.S. economy has proven impressively resistant, he says. Solomon also highlights key global issues, including inflation, geopolitical tension, and the disruptive potential of AI. As for Goldman Sachs, Solomon underscores the company’s focus on strengthening its client solutions, its culture, and its people, stating these efforts usher in a fresh chapter for the firm.