The end of inflation? Goldman Sachs' Chief Economist is optimistic about 2024

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The end of inflation? Goldman Sachs' Chief Economist is optimistic about 2024

Inflation has been the buzzword of 2023, as consumers around the world faced soaring prices for goods and services amid supply chain disruptions, labor shortages, and pent-up demand. However, according to Goldman Sachs’ chief economist Jan Hatzius, the inflationary pressures are likely to ease in the coming months, paving the way for a more stable and prosperous 2024.

Hatzius predicts that inflation will drop to central banks’ target levels in developed markets by the end of 2024, ending the era of pain for consumers. He attributes this to several factors, such as the fading of pandemic-related shocks, the normalization of consumer spending patterns, the improvement of supply conditions, and the moderation of wage growth.

As inflation subsides, Hatzius expects multiple major central banks to cut interest rates in 2024 and 2025, as they seek to support the economic recovery and avoid deflationary risks. He forecasts that the US Federal Reserve will lower its policy rate by 50 basis points in 2024, followed by another 25 basis points in 2025. He also anticipates that the European Central Bank, the Bank of England, and the Bank of Japan will reduce their interest rates by 25 basis points each in 2024.

Hatzius is bullish on the economy and the markets, as he believes that lower inflation, lower interest rates, and a robust labor market will boost GDP growth and corporate earnings next year. He estimates that the global economy will expand by 4.5% in 2024, slightly higher than the 4.3% growth in 2023. He also projects that the S&P 500 index will rise by 10% in 2024, reaching 5,500 by the end of the year.

Hatzius has been one of the most optimistic forecasters on Wall Street, arguing that the Fed would be able to tame inflation without sparking a recession. He has also been accurate in his predictions, as he correctly anticipated the strong rebound of the US economy in 2021 and 2022, as well as the peak of inflation in 2023.

Hatzius’ outlook is in contrast to some of his peers, who have warned of the dangers of persistent inflation, tighter monetary policy, and slower growth. For example, Morgan Stanley’s chief economist Chetan Ahya expects inflation to remain elevated in 2024, forcing the Fed to hike interest rates by 100 basis points next year. He also predicts that the global economy will slow down to 3.8% growth in 2024, as higher interest rates and inflation weigh on consumer and business confidence.

While there are still uncertainties and risks in the global economic landscape, such as the evolution of the COVID-19 pandemic, the geopolitical tensions, and the environmental challenges, Hatzius’ optimistic scenario offers a glimpse of hope for the post-inflation era. If his predictions come true, 2024 could be a year of relief and opportunity for consumers, businesses, and investors alike.



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