Goldman Sachs: Potential economic adjustments support anti-inflation trends, reiterates expectation of three rate cuts by the Federal Reserve next year
Goldman Sachs Chief Economist Jan Hatzius reiterated his expectation of three interest rate cuts by the Federal Reserve in 2025 during an interview, believing that the fundamental reasons for disinflation still exist. He expects the core Personal Consumption Expenditures (PCE) inflation rate to decline from 2.8% to 2.4% and noted that tariffs could lead to an increase in inflation of about 0.3%. Hatzius believes that although there are inflationary pressures in the short term, the disinflation trend will continue in the long term, especially in early 2025
According to the Zhitong Finance APP, Goldman Sachs Chief Economist Jan Hatzius discussed his outlook for the U.S. economy in 2025, the potential role of tariffs in a second Trump administration, and the Federal Reserve's latest interest rate decisions in an interview.
So far, Hatzius has maintained his prediction of three rate cuts by the Federal Reserve in 2025, stating, "I believe many of the fundamental reasons for disinflation remain intact. It's hard for me to see how we reverse this potential inflationary process. If you listen to Powell's remarks at the press conference, you'll find he seems to be saying the same thing. I agree with that."
Hatzius expects the inflation environment to remain manageable and to continue moving towards the Federal Reserve's 2% target.
He added that while specific risks such as tariffs may lead to a temporary rise in inflation, underlying economic adjustments (wages, labor market) support disinflationary trends. Sticky price components and seasonal effects will gradually align with overall disinflationary forces, exacerbating the downward trend in inflation.
Specifically, Hatzius predicts that by the end of 2025, the core Personal Consumption Expenditures (PCE) inflation rate will decrease from the current 2.8% to 2.4%.
This revised forecast reflects a moderate upward adjustment due to anticipated tariff impacts (previously expected at 2.1%).
Regarding the impact of tariffs, Hatzius expects tariffs to increase inflation by about 30 basis points (0.3%). The bank's economists are in line with similar adjustments made by the Federal Reserve at the recent FOMC meeting, which also considered inflationary pressures related to tariffs.
Some components of inflation, such as auto insurance and other industries that adjust prices annually, have fueled the rise of backward-looking inflation expectations. However, Hatzius anticipates that these effects will diminish over time, leading to a slowdown in year-on-year price increases, especially in early 2025.
Hatzius pointed out that potential disinflationary drivers include labor market rebalancing: wage growth is slowing, which helps reduce inflationary pressures. The labor market is gradually adjusting, contributing to a decrease in cost-push inflation; economic trends: the ongoing disinflationary trend is supported by broader economic stability and a slowdown in price adjustments in previously high-inflation areas.
Additionally, Hatzius emphasized that the likelihood of a "January effect" in 2025 is lower, meaning that the price increases from December to January will be less pronounced compared to previous years. This will help lower the year-on-year inflation rate and improve the inflation outlook.
Despite some volatility in inflation data (for example, higher numbers in September and October), Hatzius remains confident, citing reasons such as: improvements in underlying inflation drivers; strong wage growth and labor market conditions; and November data indicating that inflation has begun to slow