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Goldman: No Lasting Relief


Goldman Sachs note that “last week’s softer inflation reports caused some understandable relief for risky assets and put depreciation pressure on the USD that can likely extend a bit further given the light calendar ahead and likelihood that this week’s FOMC minutes will contain some discussion of the FOMC’s apparent desire to slow the pace of hikes soon. But we do not expect it to be a lasting relief.”

  • “First of all, on the international side, slowing inflation has been a bit contagious, and in any case it is hard to find a major currency that we think can rally meaningfully in the near-term given that other central banks face an even more difficult growth and inflation trade-off than the Fed. And on the U.S. specifically, most of the miss to our inflation forecasts came from bottlenecked and travel-related categories - such as used and new cars, as well as rental cars and hotels - while underlying inflation was slightly softer than last month’s worrying report but essentially in line with the recent run rate and other measures of core.”
  • “To oversimplify things a bit, this is the other side of the low-quality high inflation prints from early last year that were driven by a few categories - confirmation that the gasoline and goods-led disinflation is starting. To be clear, the relief is genuine after a long string of upside surprises and the recent booming jobs report. But, over time, markets and policymakers are likely to turn their attention to the persistence in underlying inflation which is still running well above levels consistent with the Fed’s target. And, paradoxically, the goods and commodity disinflation will provide some relief to incomes that could also eventually make the Fed’s job more difficult, which is why the recent easing in financial conditions is unlikely to be welcomed by policymakers. The FCI loop is alive and well, and should be on the upslope again soon.”
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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