Goldman Sachs Economists Predict 3 Rate Cuts This Year Despite Tariffs

David Mericle, the chief US economist at Goldman Sachs, has stated that the tariffs imposed by President Trump are unlikely to result in a prolonged period of inflation. In a recent interview, Mericle expressed his belief that the tariff-driven inflation will be transitory and that the Federal Reserve is expected to make three rate cuts this year, starting in two months.

Mericle's prediction is based on the latest economic data, which suggests that the economy and the labor market do not currently require significant rate cuts. He noted that while tariffs may give a temporary boost to inflation, the underlying trend is moving back towards the 2% target. Mericle expects the rate cuts to begin in September, as he is confident that inflation is moving in the right direction due to balanced supply and demand, particularly in the labor market. He also mentioned that the end of catch-up inflation is in sight and that tariffs are not likely to unanchor inflation expectations, although their effects will be visible month to month.

Mericle further explained that the impact of tariffs will be short-lived because the current economic conditions, especially in the labor market, are different from those of three years ago when inflation soared. He believes that the boost to inflation from tariffs, against a backdrop of a less tight labor market, will not spark a prolonged period of high inflation.

Jan Hatzius, another chief US economist at Goldman Sachs, also shared his insights on the economic landscape. He expressed his view that the recently imposed tariffs are unlikely to trigger a prolonged period of inflation, as they will not significantly disrupt the supply chain or lead to a sustained increase in consumer prices. Hatzius also forecasted that the Federal Reserve will implement three rate cuts this year, starting in two months. This prediction is based on his assessment that the tariffs will have a limited impact on the overall economy and that the Fed will need to adjust its policy to support growth.

Hatzius' forecast of three rate cuts this year is a significant departure from the current consensus among economists, who generally expect the Fed to maintain its current policy stance. His prediction is based on his assessment of the economic data and his belief that the tariffs will not have a lasting impact on inflation. Hatzius also noted that the recent increase in tariffs is unlikely to lead to a significant increase in consumer prices, as businesses will absorb some of the cost and pass on only a portion of it to consumers.

Goldman Sachs is forecasting monthly core CPI inflation increases of between 0.3% and 0.4% over the next few months, reflecting tariff-related increases in the cost of goods. This forecast is based on the assumption that businesses will pass on some of the cost of tariffs to consumers, but that the overall impact on inflation will be limited. The economist's prediction is consistent with his view that the tariffs will not have a lasting impact on the economy, and that the Fed will need to adjust its policy to support growth.

Hatzius' comments come at a time when the economic outlook is uncertain, with trade tensions and geopolitical risks posing challenges to growth. His prediction of three rate cuts this year is a bullish signal for the economy, as it suggests that the Fed will take steps to support growth in the face of these challenges. However, it is important to note that Hatzius' forecast is based on his assessment of the economic data and his belief that the tariffs will not have a lasting impact on inflation. The actual outcome will depend on a range of factors, including the evolution of trade tensions and the response of businesses and consumers to the tariffs.