Goldman, JPMorgan Predict Jolt in US Stocks on Inflation Miss

Goldman Sachs and JPMorgan Chase have both issued warnings that a potential inflation miss could jolt U.S. stocks, as investors grapple with the possibility of higher interest rates and a more hawkish Federal Reserve. The two investment banks' forecasts differ from market expectations, suggesting a more cautious outlook on the U.S. economy and stock market performance.



Goldman Sachs expects core inflation to remain sticky at around 3% in 2024, while market expectations suggest a decline to around 2.5%. The investment bank's economists believe that the Federal Reserve and other major central banks will ease policy, but the size of this easing will be limited by firming core goods inflation and sticky service price inflation. This more modest decline in inflation could lead to a more cautious approach to rate cuts and quantitative tightening, potentially impacting financial markets and investor sentiment.

JPMorgan Research forecasts global core inflation to remain around 3% in 2024, similar to Goldman Sachs, but higher than market expectations. They expect core goods inflation to return to modest positive gains in the first half of 2024, while core services inflation will likely slow to 4% year-over-year. JPMorgan believes that progress on lowering inflation will allow central banks to ease policy, but the extent of this easing will be limited by their forecast of firming core goods inflation and sticky service price inflation. This could lead to a more hawkish stance from central banks, potentially impacting financial markets and investor sentiment.



An inflation miss, where actual inflation comes in higher than expected, could significantly impact the Fed's monetary policy trajectory. This is because the Fed's primary mandate is to maintain price stability, typically defined as an inflation rate of 2%. If inflation comes in higher than expected, it suggests that the Fed's current policy stance may not be sufficient to achieve its target. In this scenario, the Fed may need to reconsider its projected rate cuts, delay or pause quantitative tightening, revise its forward guidance, and even increase the likelihood of further rate hikes.

In summary, Goldman Sachs and JPMorgan Chase have both issued warnings that a potential inflation miss could jolt U.S. stocks, as investors grapple with the possibility of higher interest rates and a more hawkish Federal Reserve. Their forecasts differ from market expectations, suggesting a more cautious outlook on the U.S. economy and stock market performance. An inflation miss could lead the Fed to adopt a more cautious or even hawkish stance, potentially delaying or reversing the expected easing of monetary policy and impacting financial markets and investor sentiment.