The latest Consumer Price Index (CPI) shows that core inflation remains stable, however, price pressures in the summer may increase.

According to experts from Goldman Sachs, inflation may rise in the coming months, but if it remains low, the Federal Reserve may consider cutting interest rates in the fall.

MAIN CONTENT

  • The newly released CPI indicates the first sign affected by tariffs.

  • Core inflation currently remains relatively mild and has not exerted significant pressure.

  • The Fed may begin a rate-cutting cycle if inflation remains low by the end of the year.

How does the CPI affect core inflation?

Kay Haigh, Co-Head of Fixed Income and Global Liquidity Solutions at Goldman Sachs, assesses: the newly released CPI shows early signs of tariff impact but core inflation remains quite mild.

Analysis shows that the Consumer Price Index reflects a small part of the impact from tax policy, while production and consumption costs have not yet risen significantly, indicating that core inflation is not under much pressure.

"If inflation pressures remain mild, the Fed could begin a rate-cutting cycle in the fall."

Kay Haigh, Global Co-Head Fixed Income & Liquidity Solutions, Goldman Sachs, July 2024

Why are the CPI reports for July and August important?

CPI reports in the next two months will determine the durability of inflation and indirectly affect the Fed's monetary policy, according to a senior expert from Goldman Sachs.

Increased price pressures in the summer may cause the Fed to maintain or tighten policy; conversely, if core inflation continues to be low, the likelihood of rate cuts will be considered more thoroughly.

What strategy is the Fed maintaining in the current inflation context?

The Federal Reserve is in a state of observation and caution regarding the latest inflation data to make the most appropriate policy decision, according to financial experts.

This strategy is based on the goal of balancing inflation control and promoting sustainable economic growth. The timing of interest rate increases or decreases still depends heavily on upcoming macroeconomic factors.

"The Fed is currently 'wait and see' regarding inflation fluctuations in Q3 that may affect interest rate management strategies."

Goldman Sachs Research Report, July 2024

Comparison Table: The Impact of CPI on Recent Monetary Policies

Year CPI Increase (%) Fed Policy Response Outcome 2022 8.5 Strong Rate Increase Control inflation but affect growth 2023 3.2 Maintain High Rates Inflation decreases slowly, stable economy 2024 (projected) 2.5 Monitoring, potential rate cuts Opportunity to support growth through easing policy

Frequently Asked Questions

How does the CPI affect the Fed's interest rates? The CPI helps the Fed assess price pressures, deciding to raise or lower interest rates accordingly. Why is core inflation more important than overall inflation? Core inflation removes volatile factors like food and energy prices, reflecting more stable price pressures. When will the Fed start lowering interest rates? If inflation remains low in the Q3 CPI reports, the likelihood of the Fed cutting interest rates in the fall is high. Can increased price pressures in the summer last? This pressure may increase in the summer but is closely monitored to avoid long-term spillover effects. How do tariff policies affect inflation? Tariffs increase the prices of imported products, contributing to fluctuations in the CPI.

Source: https://tintucbitcoin.com/goldman-sachs-lam-phat-on-dinh-fed-giam-lai/

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