GS: Too Much Fed Easing Priced In 2024, But Not Enough To Action

Goldman Sachs see there being “too much [Fed] easing priced in 2024, but not yet enough asymmetry for outright short.”

• “A stretch of softer-than-expected data has allowed investors to price roughly 100bp of Fed cuts in 2024 (from 60bp a month ago). This degree of easing in 2024 appears inconsistent with our economists’ view of a soft landing (we expect the first cut to commence only in Q4 next year), and is perhaps somewhat excessive even when considering the distribution of risks around our economic outlook.”
• “However, at this point we don’t yet see enough asymmetry in YE24 pricing to engage in outright shorts.” Whilst the cuts are seen as too aggressive, “the easing currently priced is not inconceivable in some states of the world (either a recession that triggers even more aggressive cuts than priced, or insurance cuts starting around mid-year if inflation falls more quickly than we expect)”.
• “If the front-end continues to rally from here without a significant deterioration in the growth outlook for next year, we would be looking to engage in outright shorts at better levels.”