(Bloomberg) — U.S. inflation won’t come down as quickly as markets are currently pricing, according to strategists at Goldman Sachs Group Inc.
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Investors might assume that a sharp deceleration in growth will lead to price pressures easing faster and tend to be more bearish on energy prices than implied by commodity futures, wrote the strategists led by Praveen Korapaty in a note Friday. They see the limited ability of these things to lower prices, and say markets are also ignoring the potential for “lagged inflation” in sectors like health care.
“While we expect further declines in inflation going forward, markets appear considerably more optimistic than us about the pace of cooling,” the strategists said.
The Federal Open Market Committee paused its round of interest rate hikes on Wednesday, but policymakers expected rates to rise more than expected in response to surprisingly persistent price pressures and strength in the labor market. Meanwhile, short-term inflation expectations in the United States fell in early June to a low in more than two years, helping to strengthen consumer sentiment.
Fundstrat’s head of research, Tom Lee, said in a note on Friday that price increases could ease, potentially this year and possibly amid a decline in the housing or rent component of the price index. to consumption. The stock market is starting to rally to that view and that likely explains much of the year-to-date gains, he said.
“The Fed can end this inflation war (aka pivot) when the collective public thinks inflation is broken,” Lee said, and his best guess is that it “will be somewhere in 2023.”
Goldman, meanwhile, even has an exchange for those who share the view that price increases will remain sticky. The firm’s strategists recommend investors buy one-year swaps to bet on higher inflation than current market prices.
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