TechFlow news — On January 2, according to Jinshi News, Goldman Sachs published a report revising its forecast for Fed rate cuts this year from 100 basis points down to 75 basis points, stating that reports of a rebound in underlying inflation have been greatly exaggerated. Core PCE inflation annualized at 2.5% from September to November last year, slightly higher than the previous three-month pace of 2.3%, but lower than the year-on-year increase of 2.8%, still consistent with an ongoing downward trend.
The report also noted that the Dallas Fed's trimmed mean PCE inflation showed an annualized PCE inflation rate of 2.4% from September to November last year, and 1.8% in November alone. As labor market tightness has returned to 2017 levels, wage growth has slowed to an annual rate of 3.9%, within the 3.5–4% range. With productivity growth assumed at 1.5–2% over the coming years, this would be consistent with a 2% inflation rate.
Goldman Sachs also assumed an average 20% increase in U.S. tariffs on Chinese goods, along with tariffs on European automobiles and Mexican electric vehicles, which are expected to raise inflation by 0.3–0.4% next year. However, these effects should dissipate after one year unless significant second-round effects emerge through wages or inflation expectations. This impact would be comparable to VAT increases seen in other G10 economies, which typically do not leave a lasting imprint on inflation or monetary policy. Furthermore, the trade tensions during 2018–2019 tightened financial conditions sufficiently to prompt the Fed to ease policy, suggesting that the monetary policy risks associated with tariffs are at least two-sided.
