Goldman: Fed Easing Priced For '24 Likely Bounded Near Term, Sell SFRZ4 95.75/96.25 Strangle

Late on Friday Goldman Sachs wrote “pushback from a broad set of Fed speakers against an earlier start to easing has led investors to not only take down the odds of a cut in March, but also reprice the terminal level of Fed funds following a cycle of adjustment cuts higher by about 25bp.”

• “Additionally, the emphasis on a gradual pace of normalization has flattened the inter-meeting Fed funds gaps this year.”
• “On the low side, we note that even if the Fed were to begin cutting only in summer, it would still be able to deliver 125bp of easing without resorting to large decrements. Given our expectation that inflation will largely converge towards target over the first half of this year, this amount of easing isn’t historically anomalous.”
• “On the high side however, if the Fed did not begin easing in March, it would be hard to deliver more than 175bp of cumulative easing (given that there would be only seven meetings left in the year at that point).”
• “Given recent Fedspeak, this appears less likely without a significant deterioration in the growth outlook.”
• As such, they recommended selling the SFRZ4 95.75/96.25 strangle.