Goldman Sachs: Market Expectations for Inflation Decline Too Optimistic
Goldman Sachs strategists have issued a cautionary note, suggesting that market optimism regarding the deceleration of inflation may be unfounded. They express their belief that while inflation is expected to decrease in the future, the markets appear significantly more optimistic about the speed at which it will cool.
Goldman Sachs Forecasts Slower Decline in U.S. Inflation Than Market Predictions
According to a report from Bloomberg, Goldman Sachs strategists, led by Praveen Korapaty, the chief interest rates strategist, have issued a warning stating that inflation in the United States is projected to decline at a slower rate than what the markets currently anticipate.
The strategists at Goldman Sachs explain that investors might be assuming that a sharp economic growth slowdown would result in a more rapid decrease in inflation. Additionally, they suggest that the market’s outlook on energy prices may be more pessimistic compared to what is implied by commodity futures. However, the strategists argue that these factors will have a limited impact on inflation, emphasizing that the markets are overlooking the potential for “delayed-onset inflation” in sectors such as healthcare. In their note, they state:
“While we do expect inflation to continue declining, the markets’ outlook on the pace of cooling is considerably more optimistic than ours.”
Following the report by the U.S. Bureau of Labor Statistics (BLS) showing a decrease in inflation from 4.9% to 4% in May—the smallest 12-month increase since March 2021—the Federal Reserve decided to pause interest rate hikes after ten consecutive increases during their Federal Open Market Committee (FOMC) meeting last week. However, core inflation remains high at 5.3%.
Although many anticipate the Federal Reserve will soon begin lowering interest rates, Fed Chair Jerome Powell stated during a press conference on Wednesday that significant rate cuts would be appropriate only when inflation experiences a substantial decline, which he believes will take a couple of years.
Do you agree with Goldman Sachs’ assessment of inflation in the United States? Let us know your thoughts in the comments section below.
Frequently Asked Questions (FAQs) about inflation decline
Question: What is Goldman Sachs cautioning about regarding inflation decline?
Answer: Goldman Sachs is cautioning that markets appear to be more optimistic than they are about the pace of inflation’s decline. They believe that the rate of inflation’s decrease will be slower than what the markets currently anticipate.