According to ChainCatcher, Goldman Sachs has published a report indicating that its forecast for the Fed's interest rate cut this year has been reduced from 1 basis point to 0.75 basis points, and that reports of a rebound in core inflation have been greatly exaggerated. The annualized increase in core PCE inflation from September to November last year was 2.5%, slightly higher than the 2.3% in the previous three months, but lower than the year-on-year increase of 2.8%, still consistent with a continuing decline.
The report also indicates that the Dallas Fed has adjusted the average PCE inflation for last year, with the annualized PCE inflation from September to November being 2.4%, down from 1.8% in November last year. As the labor market tightens back to 2017 levels, the annual wage growth rate has slowed to 3.9%, within a range of 3.5 to 4%. If productivity growth is 1.5 to 2% over the next few years, it will align with 2% inflation.
Goldman Sachs also assumes that the average tariff rate on Chinese goods in the U.S. will be raised by 20%, and tariffs will be imposed on European cars and Mexican electric vehicles, which is expected to increase inflation by 0.3 to 0.4% next year. However, the related impact should dissipate after a year, unless significant second-round effects arise through wages or inflation expectations. This would make it comparable to the VAT increases that have occurred multiple times in other G10 economies, where VAT increases typically do not leave a lasting impact on inflation or monetary policy.
In addition, the tightening of the financial environment due to the trade war from 2018 to 2019 was sufficient to prompt a loosening of Fed policy, suggesting that the monetary policy risks brought about by tariffs are at least two-sided. (Jin Shi)