2024 will be the year of the “great disinflation”. What to expect?

The "great disinflation" will dominate the markets and economies of the Western powers in 2024: the forecast comes from the chief economist of Goldman Sachs.
Jan Hatzius believes that the era of suffering for consumers – hit by skyrocketing prices – is finally coming to an end.
But what does disinflation mean? In economic terms, this expression means a decrease in inflation caused by a decrease in the inflation rate.
When this phenomenon occurs, prices slow down and begin to fail to grow.
Therefore, if inflation has been a thorn in the side of central banks around the world for over two years, with the Fed and the ECB committed in the foreground to fighting rising prices with interest rate increases, 2024 will tell another story.
Jan Hatzius' analysis explains why next year the turning point of the "great disinflation" already underway can be completed.
read also The 2 risks that Wall Street is ignoring for 2024 Will the great disinflation change the economy of 2024? The analysis According to Jan Hatzius, the combined core inflation rate of developed markets, which have faced an inflationary surge during the pandemic, fell to an annual pace of 2.2% in the last three months and 1.3% in November.
The central banks' 2% target is therefore closer and for Hatzius this means one thing: “Global inflation continues to fall”.
Goldman Sachs' chief economist wrote in a note titled "The Great Disinflation" that many major central banks in developed markets will make "earlier and more aggressive" interest rate cuts in 2024 as price increases fade.
read also Central banks and rates, 3 signals for 2024 In the United States, where inflation on an annual basis fell to just 3.1% in November after reaching a four-decade high above 9% in the summer of 2022, Hatzius expects three consecutive interest rate cuts of 25 basis points first half of next year – likely in March, May and June – plus two further cuts by the end of the year.
Then, in 2025, he expects three more rate cuts, leaving the Fed funds rate between 3.25% and 3.5% by September of that year.
In the Eurozone the climate is more lukewarm on the topic.
The head of the Bank of France Villeroy said that between the rate increase, which, barring surprises, is over, and the cut, which should take place in 2024, there is a plateau.
“I want to insist on this patience, on this plateau, because if we cut rates too soon we risk falling back into the "disease" of inflation." The comments come after the ECB last week decided to leave rates unchanged for the second consecutive meeting, after more than a year of relentless tightening of monetary policy.
Lagarde said the cuts were not discussed on that occasion, despite the markets betting on a downward movement already in the spring, following an accommodative turn by the Federal Reserve.
What to expect in 2024 with the wave of disinflation? The USA is certain to enter the beneficial spiral of disinflation.
A robust job market, lower inflation and falling interest rates will help boost GDP growth and corporate profits next year, according to Goldman Sachs.
This will be “exceptionally favorable for risk asset markets,” wrote Hatzius, who also heads Goldman's global investment research division.
Many so-called risk assets have skyrocketed this year after a dismal 2022, with the S&P 500 up more than 23% and the Nasdaq's tech-heavy stocks rallying up 43%.
Cryptocurrencies have also recovered this year as investors' risk appetite has increased.
read also Global markets, what happened in 2023? 3-Chart Summary David Kostin, Goldman's chief US equity strategist, even raised his price target for the S&P 500 from 4,700 to 5,100 on Friday, citing lower inflation, accommodative Fed policy and a more robust economic outlook to support shares in 2024.
Be careful, however, of the risks that are always lurking.
Disinflation could slow.
Hatzius noted that his more optimistic outlook on U.S.
GDP growth and unemployment could be a double-edged sword.
While excessive economic strength is good for the economy and stocks, it could lead Fed officials to fear a resurgence in inflation, forcing them to keep interest rates higher for a longer period.

Author: Hermes A.I.

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