A softer-than-consensus core CPI print, as Goldman is forecasting, would likely reinforce market expectations that disinflation is continuing despite the war-related energy price shock, supporting bonds and easing near-term pressure on the dollar. Traders will parse Warsh’s House testimony closely for confirmation of his recent Sintra comments that inflation expectations and risks have both declined, comments that read as more dovish than the Fed’s own report to Congress last week citing tariffs and war-driven energy costs as inflation drivers. Any divergence between Goldman’s benign core reading and the headline drag from falling energy prices could complicate the market’s read on the Fed’s reaction function, particularly with Warsh due to face lawmakers again on Wednesday. A larger core PCE increase than core CPI, as Goldman flags via lagged financial services effects from May’s equity rally, may temper how far markets lean into a dovish interpretation of Tuesday’s data.
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Goldman sees inflation cooling just as Warsh heads to Capitol Hill to defend the Fed’s next move.
Summary:
- Goldman Sachs forecasts June core CPI rose 0.17% month on month, below the 0.2% consensus, which would round the year over year rate down to 2.8% from 2.9%.
- The bank expects headline CPI fell 0.11% month on month in June on lower energy prices, taking the year over year rate to 3.87% from 4.25%, versus a consensus of -0.1% and 3.8%.
- Goldman flagged soft autos inflation, including a 0.5% drop in used car prices and small declines in new cars and insurance, alongside benign shelter readings of a 0.23% rise in owners’ equivalent rent and 0.17% in the rent index.
- The bank expects moderate travel inflation, with airfares up 1.5% and hotels up 0.3%, and sees downward pressure from residual seasonality in communication and new car prices.
- Goldman’s forecast implies a 0.24% monthly rise in core PCE for June, with a larger financial services contribution than to core CPI reflecting May’s equity price gains flowing through with a lag.
- Fed Chairman Warsh testifies before the House Financial Services Committee on the Fed’s Semi-Annual Monetary Policy Report at 10am ET (2pm GMT) on Tuesday, having said at the ECB’s Sintra forum that inflation expectations and risks have both come down, and is due to speak again to the Senate on Wednesday.
Goldman Sachs expects US inflation data due Tuesday to show June core CPI cooling to an annual rate of 2.8%, even as Federal Reserve Chairman Kevin Warsh prepares to testify before Congress twice this week on the central bank’s policy outlook, according to a note from the bank.
June CPI figures are due at 8:30am Eastern time (12:30pm GMT) on Tuesday, July 14. Goldman forecasts a 0.17% month on month increase in core CPI, below the 0.2% consensus, which would round the annual rate down to 2.8% from 2.9%. On the headline measure, the bank expects a 0.11% monthly decline, driven by a 4.4% drop in energy prices, which would pull the year over year rate down to 3.87% from 4.25%, compared with a consensus estimate of -0.1% monthly and 3.8% annually.
Goldman’s forecast rests heavily on softer autos and shelter categories. The bank expects used car prices to fall 0.5%, with smaller declines in new cars and car insurance, while shelter inflation stays benign, with owners’ equivalent rent rising 0.23% and the rent index up 0.17%, reflecting a continued slowdown in underlying trend inflation. Travel services are expected to post more moderate gains, with airfares up 1.5% and hotels up 0.3%, based on signals from alternative pricing data, while Goldman also expects residual seasonality to weigh on communication and new car prices. The bank said its forecast implies a 0.24% monthly increase in core PCE inflation for June, with a larger contribution from financial services than in the CPI measure, reflecting May’s equity market gains flowing through to that component with a lag.
The inflation data lands just ahead of Warsh’s first congressional appearance of the week. At 10am Eastern time (2pm GMT) on Tuesday, the Fed chairman testifies before the House Financial Services Committee on the central bank’s Semi-Annual Monetary Policy Report. Warsh is due to return to Capitol Hill on Wednesday for a further appearance before the Senate.
Markets will be watching closely for whether Warsh’s testimony echoes recent comments he made at the ECB’s Sintra forum, where he said inflation expectations and inflation risks had both come down, and suggested that if artificial intelligence expands the economy’s supply side, that would carry major implications for monetary policy. His remarks this week will be weighed alongside Tuesday’s CPI print and the Fed’s own report to Congress last week, which flagged tariffs and war related energy costs as ongoing sources of price pressure, as investors try to gauge how close the central bank is to shifting its policy stance.
This article was written by fl6553e4b45d84486a91658a8b3f02bf22 at investinglive.com.