A new Goldman Sachs report seen by CNN warns that inflation is likely to remain red-hot in the United States, so it is not expected to cool down as much as many expected.
“The inflation outlook worsened this winter, as we expected, and now it is questionable how much it will improve this year”, says the report.
With this frame of reference, Goldman Sachs raised its forecasts of core PCE inflation, which is the preferred measure of prices by the Federal Reserve (Fed), which is expected to slow down to 3.7% by the end of this year.
The figure represents a jump from Goldman’s previous forecast of 3.1%, and almost double the target of the Fed of 2%.
Regarding forecasts for consumer prices, which rose 7.5% annualized in January and recorded records not seen since 1982, the financial institution expects them to decrease by 4.6% at the end of 2022 and 2.9% at the end of 2023.
According to the report: “The initial spike in inflation could have lasted long enough and peaked high enough to raise inflation expectations in a way that feeds back into wage and price setting.”
It is also warned that inflation forecasts could reach “very high levels” if the Russian invasion of Ukraine causes prices to rise. energy prices soar or supply chains are interrupted, added Goldman.
The bank’s economists also expressed concern about the combination of high inflation expectations and the strength of the labor market that prevails , as “they threaten to unleash a moderate spiral of prices and wages”.
With the new inflation forecasts, Goldman expects constant increases in interest rates in the seven remaining meetings of the Fed this year. And it does not rule out an increase in the additional rate for next year, with which the total of 2023 will be four.
The institution has also said that the energy prices derived from the conflict in Ukraine will probably boost the Eurozone inflation to new high in May.
Goldman Sachs raised its inflation forecast to 6.5% in May, before it eases to 5.4% in the zone by the end of the year.
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