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Goldman Sachs<\/a> economists have been particularly bullish<\/a> over the past few years. When most of his Wall Street peers warned that rising interest rates and high inflation meant a recession was imminent in 2022 and 2023, Goldman\u2019s chief economist and head of global investment research Jan Hatzius put the odds of that dire outcome in a range of 15%<\/a> to at most 35%<\/a>.<\/p>\n The bullish call proved prescient last year, with the economy running strong and most Wall Street forecasters abandoning their recession calls in favor of a \u201csoft landing<\/a>\u201d scenario\u2014where inflation fades and the economy avoids a recession, but growth proves anemic at best.<\/p>\n Over the past few months, however, after a few hot inflation and jobs reports, many of Wall Street\u2019s prognosticators have shifted their forecasts once again to a \u201cno landing<\/a>\u201d scenario\u2014where economic growth remains strong, but inflation also remains an issue.\u00a0<\/p>\n Continuing their contrarian streak, Goldman Sachs economists have a different, more bullish view. In a Friday note to clients, a team led by the investment bank\u2019s chief U.S. economist David Mericle said they expect \u201cmuch stronger\u201d GDP growth in 2024 (2.5%), a significant drop in inflation, and three interest rate cuts from the Federal Reserve. It\u2019s a sort of goldilocks forecast for the economy that seems paradoxical, on its face. Goldmans economists say you could be forgiven for thinking so.<\/p>\n \u201cWe are often asked whether these forecasts aren\u2019t contradictory\u2014won\u2019t stronger growth prevent inflation from falling or even reignite it? We don\u2019t think so, for two reasons,\u201d they wrote.<\/p>\n First, the team explained that supply-side economic growth should prevent supply-demand imbalances and labor market tightness that drives inflation. Elevated immigration, for example, is increasing the size of the labor force, preventing wages from surging in a way that could reignite inflation. \u201cSo far measures of labor market tightness have continued to fall or move sideways, not rise, despite strong GDP growth,\u201d Goldman\u2019s economists wrote. \u201cWe expect these measures to remain roughly where they are through the remainder of this year.\u201d<\/p>\n And even if the labor market does tighten further\u2014i.e. the unemployment rate falls or job openings rise\u2014the impact on inflation \u201cwould be quite small compared to the impact of the major disinflationary forces we expect this year,\u201d according to Mericle and his team.<\/p>\n Significant post-pandemic disinflationary forces are the second major reason why Goldman\u2019s economists believe inflation can fall in 2024, even as economic growth rises. The first of these forces is the \u201ccatch-down\u201d effect of the Fed\u2019s lagging shelter inflation data. Goldman\u2019s economists have long argued that the Fed\u2019s measure of shelter inflation lags the reality on the ground, where home<\/a> and rent prices<\/a> are barely rising, leading to higher cumulative official inflation numbers. That trend should fade this year, leading to a 2 percentage point drop in shelter inflation in 2024, according to Goldman\u2019s calculations.\u00a0<\/p>\n On top of that, pandemic-era shortages and supply chain issues have been \u201cresolved,\u201d inventories are rising, and \u201ccompetition is kicking back in,\u201d the economists said. That should lead to falling prices for things like cars, in particular, where part shortages caused prices to soar during the pandemic. With \u201cthe final echoes of the 2022 inflation surge\u201d fading, we really \u201ccan have both strong growth and lower inflation,\u201d according to Goldman Sachs.<\/p>\n Of course, not everyone is so bullish. Just this week, JPMorgan Chase<\/a> CEO Jamie Dimon argued in his annual letter to shareholders<\/a> that he\u2019s preparing for a range of economic scenarios, including one where interest rates spike to \u201c8% or even more.\u201d<\/p>\n Dimon said investors should \u201cbeware\u201d of the potential for higher interest rates and a recession, adding that \u201ceconomically, the worst-case scenario would be stagflation, which would not only come with higher interest rates but also with higher credit losses, lower business volumes and more difficult markets.\u201d In this regard, Dimon was echoing the flood of predictions from economists in 2022 that the economy was headed for a repeat of the stagflationary 1970s.<\/p>\n Apollo\u2019s chief economist Torsten Slok has also repeatedly warned that he believes the Fed won\u2019t be able to cut rates at all in 2024, with inflation proving difficult to tame. The veteran market watcher fears investors are reliving the 1990s tech bubble<\/a> amid the AI boom as well, and things\u00a0 typically don\u2019t end well during periods of rising rates with bubbly stock valuations.<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n