Goldman Sachs Says 'The Great Disinflation' Is Under Way, Setting the Stage for 5 Eventual Fed Rate Cuts

By Jace Dela Cruz

Dec 19 2023, 02:25 AM EST

The chief economist of Goldman Sachs is anticipating the end of the post-pandemic era inflation soon, as the world economy has now entered a period of "The Great Disinflation."

Citing Goldman Sachs data, Fortune reported that the combined core inflation rate of the developed markets that dealt with an inflationary surge during the pandemic fell to an annualized pace of only 2.2% in the past three months and 1.3% in November, which is nearly around central banks' 2% target.

According to Goldman Sachs' chief economist Jan Hatzius, this means that global inflation continues to drop.

Goldman Sachs Says 'The Great Disinflation' Is Under Way, Setting the Stage for 5 Eventual Fed Rate Cuts — The chief economist of Goldman Sachs is anticipating the end of the pandemic-era inflation soon, as the world economy has now entered a period of "The Great Disinflation." Michael M. Santiago/Getty Images

Goldman Sachs' Chief Economist Says 'The Great Disinflation' Is Coming

In Monday's note titled "The Great Disinflation," Hatzius wrote that major central banks in developed markets will initiate "earlier and more aggressive" interest rate cuts in 2024 as inflation cools down and price increases wane.

In the United States, with November's year-over-year inflation declining to 3.1% from a four-decade high above 9% in mid-2022, Hatzius predicted three 25 basis point interest rate cuts in the first half of 2024, likely in March, May, and June.

By year-end, he anticipated two more cuts, plus three more in 2025, leaving the funds rate of the Federal Reserve between 3.25% and 3.5% by September 2025.

Hatzius believes the Fed could cool down inflation without triggering a serious economic downturn. His optimistic outlook, reducing the probability of a US recession from 35% to only 15%, establishes him as one of Wall Street's most bullish forecasters.

GDP Growth in 2024

Goldman Sachs envisions a robust labor market, declining inflation, and lower interest rates will contribute to GDP growth and corporate earnings in the coming year, creating a favorable environment for risk asset markets.

Hatzius sees this as a positive development for risk asset markets, which have soared this year after a vicious 2022, like the S&P 500, which has risen over 23% this year, and the Nasdaq, which has surged 43%. Additionally, cryptocurrencies, including Bitcoin and Ether, have reportedly experienced a resurgence this year.