Goldman Sachs cuts Fed rate cut forecast for this year to 75 basis points
Odaily Planet Daily News: Goldman Sachs has released a report stating that its forecast for the Federal Reserve to cut interest rates this year has been greatly exaggerated, with reports of a rebound in underlying inflation dropping from 1% to 0.75%. The annualized increase in core PCE inflation from September to November last year was 2.5%, slightly higher than the 2.3% increase in the previous three months, but lower than the 2.8% year-on-year increase, still indicating a sustained decline. The report also pointed out that the Dallas Federal Reserve's adjusted average PCE inflation from September to November last year was 2.4% annualized PCE inflation, compared to 1.8% in November last year. With the labor market tightening returning to 2017 levels, the annual wage growth rate has slowed down to 3.9%, ranging from 3.5% to 4%. If productivity grows by 1.5% to 2% in the next few years, it will be in line with 2% inflation. Goldman Sachs also assumes that a 20% increase in average US tariffs on Chinese goods and tariffs on European cars and Mexican electric vehicles will increase inflation by 0.3 to 0.4% next year. But the impact should disappear after one year, unless there is a significant second round of impact through wage or inflation expectations. This will make it comparable to the value-added tax growth that has occurred multiple times in other G10 economies, which typically does not have a lasting impact on inflation or monetary policy. In addition, the trade war from 2018 to 2019 tightened the financial environment, which was enough to prompt the Federal Reserve to relax its policies. It is believed that the monetary policy risks brought by tariffs are at least double-sided. (Golden Ten)