VIEW: Goldman: Pullback in Inflation Exp. Reduces Impetus For 100bp Hike

Goldman Sachs note that “at the June FOMC meeting, Chair Powell acknowledged that the Fed’s decision to hike by 75bp had been influenced by firming of inflation expectation measures, including the rise in the Fed staff’s index of Common Inflation Expectations (CIE).”

• “Since the June FOMC meeting, inflation expectations data have notably softened. 5-10 year inflation expectations were revised down by 0.2pp in the final June UMich report and declined by 0.3pp to 2.8% in the preliminary July report, 3 year inflation expectations in the NY Fed's survey have declined by 0.3pp since April, and market-based measures of inflation expectations have materially declined. Our monthly version of the CIE points to downward revisions after incorporating these and other data through mid-July, and indicates that the CIE would settle comfortably within its historical range if underlying inflation expectations measures stay at today’s levels.”
• “This softening of inflation expectations is one reason why we expect the FOMC will not accelerate the near-term hiking pace and will deliver a 75bp hike at the July FOMC meeting.”