Investing.com - Spencer Hill, an economist at Goldman Sachs Group Inc (NYSE:GS), projects a forthcoming decrease in the core inflation rate of the United States over the next few months.
Hill's prediction is based on four key factors: a sustained drop in used car auction prices; persisting seasonal challenges; a drastic slowdown in apartment rental list prices and reduced upward pressure from lease renewals coupled with substantial advancements towards balancing the labor market.
In response to these developments, Goldman Sachs has made some adjustments to its price forecasts.
"Our December 2023 core PCE forecast has been revised down by two-tenths to 3.5% (previously it was 3.7%)," stated Hill. For now, Goldman’s estimate for December 2024 remains steady at 2.4%.
Furthermore, they have also cut their December 2023 core CPI forecast by three-tenths to reach an annual rate of 3.9% – this larger reduction reflects used cars' greater influence on the CPI measure.
According to Hill's analysis, such predictions should reinforce Federal Reserve’s argument that the US can evade economic contraction or recession.
"From Fed's viewpoint," he added, "an additional decrease of about 0.3pp relative to June projections in core PCE towards year-end would further diminish any risk related with unanchoring inflation expectations."
This scenario would strengthen the Fed’s belief that price stability can be restored without needing an economic slump or recession while making strides toward disinflation - visible signs expected within June and July’s CPI and PCE data - will validate the Fed committee's approach of decelerating monetary tightening pace thus reducing chances of consecutive hikes during July and September.