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