Goldman Sachs lowers its forecast for the Federal Reserve's interest rate cut this year to 75 basis points

Goldman Sachs released a report stating that its forecast for the Federal Reserve's interest rate cut this year has been reduced from 1 basis point to 0.75 basis points, and its reports on the rebound of basic inflation have been greatly exaggerated. The core PCE inflation annualized increase from September to November last year was 2.5%, slightly higher than the previous three months' 2.3%, but lower than the annual increase of 2.8%, still in line with a continuous decline.

The report also pointed out that after adjusting, Dallas Fed's average PCE inflation from September to November last year was at an annualized rate of 2.4% and it was at 1.8% in November last year itself. As labor market tightness returns to levels seen in 2017, wage growth has slowed down to an annual rate of about 3.9%, within a range between 3.5% and 4%. If productivity grows by between1 .5% and % over the next few years, it will be consistent with an inflation rate of around %.

Goldman Sachs also assumes that if US tariffs on Chinese goods are increased by an average of %20 ,and tariffs are imposed on European cars and Mexican electric vehicles, it is expected that this would cause next year’s inflation to rise by between %.03 - %.04 . However, these effects should disappear after one year unless they generate significant second-round impacts through wages or inflation expectations.This can be compared with VAT increases which have occurred multiple times in other G10 economies; such increases usually do not leave lasting impacts on either monetary policy or overall rates of price rises (inflation).

In addition,the tightening financial environment due to trade wars during years2018-19 were enough for prompting easing policies from Federal Reserve.It believes risks brought upon monetary policy due tariff imposition are atleast two-sided.