Goldman’s Joshua Schiffrin sees 4 Federal Reserve rate cuts and US inflation at 2% in 2024

The Federal Reserve will lower interest rates starting in March for a total of four times this year and inflation will hit the central bank’s 2 per cent target, according to Joshua Schiffrin, Goldman Sachs’ global head of trading strategy.

The executive, who last year correctly predicted a soft landing in the US economy, expects the Fed’s counterparts in Europe and the UK to follow suit. The Bank of Japan, however, will buck the trend, raising rates in April, Schiffrin said in his list of 10 predictions for 2024.

While risky assets will deliver gains broadly this year, Schiffrin warns the first half will be tough to navigate as markets gyrate on bets over the timing and pace of Fed rate cuts. He advises investors to look for opportunities in emerging markets such as Turkey and touts Chinese stocks as a contrarian buy after the local benchmark hit pandemic lows.

“The first half of 2024 will be a different kind of year than the past four with choppy rangebound markets and no giant trends,” Schiffrin said in a note to clients. “The central banks ease will dominate the storylines but that may be hard to trade given how much is priced.”

Bond traders have pared back their expectations for rate cuts amid a slew of better-than-expected economic data. Back in December, a March rate reduction was seen as a sure thing. Now, the implied probability has been reduced to around 40 per cent. For all of 2024, swaps point to a total of 135 basis points of interest-rate reductions, versus 100 basis points projected by Schiffrin.

Shipping disruptions at the Red Sea as a result of geopolitical tensions are unlikely to deter the broader downtrend in pricing pressures, according to the Goldman trader. Going forward, the Fed is likely to modify its inflation target to a range of 1.5 per cent to 2.5 per cent next year once the 2 per cent target is achieved, he said.