The report suggests that this overshoot in inflation is largely due to the rise in durable goods prices triggered by the persistent supply chain crisis. Goldman Sachs Economic Research also expects inflationary pressures from wage and rent growth, but this will only keep inflation “moderately above 2%”, in line with the Fed’s updated framework target.
“The current rise in inflation will worsen this winter before improving, but as supply-restricted categories shift from a transitory inflation boost to a transitory deflationary drag, we expect core PCE inflation to fall from 4.4% by late from 2021 to 2.3% by the end of 2022, ”he says in the report.
The firm also expects the economy to accelerate again to a growth rate of over 4% over the next few quarters, citing the reopening of the service sector, consumer spending on accumulated savings and replenishment of inventories.
“These forces will face a large and steady headwind due to declining fiscal support that we hope will ultimately bring GDP growth close to potential by the end of 2022,” they mention in the report.
Lower rates
The report claims it would advance its forecast on the timing of the Fed’s first rate hike to July 2022, shortly after the phasing out ends.
Currently, the FOMC is scheduled to complete the downsizing process in mid-June 2022. Policymakers will meet in mid-December where they will present updated economic forecasts and expected political trajectories. In September, around half of policymakers believed that a rate hike would not be necessary until 2023.
“Inflation will have been well above target for a while by then, and we believe that a continued move from tapering to rate hikes will be the path of least resistance, with a first rise in July and a second in November“They note in the report.” As we expect growth and inflation to stabilize by the end of the year without the need for an aggressive tightening of monetary policy, we have targeted a slower pace of two increases per year from then”.
Source From: Ambito
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