Goldman Sachs says the soft landing for the economy is 'on track'

Published Mon, Jan 29 20248:35 AM EST

Declining inflation rates and consistent growth should create a solid background for stocks and other risky assets, even though some bouts of volatility are likely, according to Goldman Sachs. Broadly speaking, a "soft landing [is] on track," the firm said in a client note in which Goldman market experts said they expect the Federal Reserve soon to make a nod toward an easing in monetary policy that also will be market-positive. "The broad data still points firmly in the direction of easing inflation pressure and resilient growth, especially in the US," wrote Dominic Wilson, senior advisor in Goldman's Global Markets Research Group. "Because markets are already priced for good outcomes, we expect periodic wobbles around this benign path. But we still think it makes sense to fade those pullbacks and expect US equities and credit to make new highs, as they have been." The analysis follows a bout of economic news trending in the Fed's direction as it seeks to rein in inflation while not thwarting growth. Gross domestic product in the fourth quarter grew at a surprisingly strong 3.3% annualized rate , while core inflation as measured by personal consumption expenditures prices rose 2.9% from a year ago. Moreover, core PCE increased at an annualized 1.9% pace over the previous six months and 1.5% annualized on a three-month basis, both numbers below the Fed's 2% goal. Those numbers should be enough for the central bank's Federal Open Market Committee this week to signal that rate hikes are over and cuts are on the way. "This week's FOMC meeting will need to remove the tightening bias to keep March alive, as the [Bank of Canada] did last week, but is unlikely to preview a March cut," Wilson wrote. "But the path to March still looks very open, so long as the data breaks mostly favorably." Markets are pricing in about a 50-50 chance of a March cut and a total of six quarter-percentage point moves by the end of the year, according to the CME Group . While Goldman thinks that could be a little aggressive, the firm still sees a significant easing bias from the central banks, which would be positive for markets so long as it's part of a normalization process rather than in response to substantial economic weakness. "Equities tend to rally further after the first cut when easing is driven by rate 'normalization' (as we expect), and even more so when policymakers take out insurance against growth scares that do not fully materialize," Wilson wrote. "The broad backdrop remains risk-positive, allowing new highs in equities." —CNBC's Michael Bloom contributed .