Goldman expects US core CPI to ease to 2.8% year-on-year in June
At a Glance
The desk views Goldman's forecast of a softer core CPI print for June, potentially at 2.8% YoY, as reinforcing the prevailing narrative of disinflation in the US economy. Per the full note, if this materializes, it may lessen immediate upward pressure on the dollar by bolstering support for bonds. The expectation that the core CPI will rise by only 0.17% month-on-month, below the consensus of 0.20%, suggests that inflationary pressures could be easing despite external shocks, such as the energy impact from ongoing geopolitical tensions.
Key Takeaways
- 01Goldman's forecast points towards easing inflation at 2.8% YoY for June, which may support bond prices.
- 02A weaker core CPI print would reduce pressure on the dollar, aligning with a dovish Fed outlook.
- 03Warsh's upcoming testimony could provide crucial context on inflation expectations and Fed policy.
- 04Distinct trends between core CPI and core PCE could complicate market interpretations.
Full Analysis
What the desk is arguing
The desk argues that Goldman's prediction of a cooling core CPI will ease pressure on the dollar while supporting bond prices. According to Goldman's projections, a continued decline in inflation signals that the Fed may adopt a more dovish stance, which is increasingly relevant with Warsh's forthcoming congressional testimony that is expected to scrutinize inflation expectations.
Supporting this argument is Goldman's forecast that overall headline CPI will drop by 0.11% month-on-month, reflecting the impact of falling energy prices; thus, the year-over-year CPI would decline from 4.25% to 3.87%. These figures suggest that core components like autos and shelter are stabilizing, making the anticipated prints crucial for interpreting the Fed's policy trajectory in light of potentially divergent inflation measures.
It bears mentioning that a larger-than-expected rise in core PCE could confound market assumptions on the Fed's dovishness, thus posing a risk to the dollar's near-term dynamics if core inflation diverges significantly from headline metrics.
Where it sits in our coverage
Our consensus target for the USD, influenced by the current commentary, is positioned at 1.075, with a range from 1.04 to 1.12. Specific targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk’s assessment aligns with the lower end of the consensus spectrum, particularly in light of ongoing disinflationary signals amid geopolitical disruptions influencing energy costs.
How other firms see it
Firms like jpmorgan show alignment with our desk's view, while bofa offers a contrary perspective, projecting a more bearish outlook for the dollar.
Currency pairs such as USD/JPY and EUR/USD may reflect movements in line with the Fed's next steps and the evolving inflation narrative in the US as markets digest core CPI and Warsh's remarks.
Market Implications
Watch for USD levels around 1.075 as a potential pivot point following Goldman's release. Any surprises from core CPI data could significantly influence Fed expectations and dollar valuation in the near term.
From the original
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
Related speeches
4 itemsGoldman expects US core CPI to ease to 2.8% year-on-year in June - investingLive
FX Daily: Dollar bears chase totality
The desk anticipates that a soft US July CPI print could dampen expectations for a September rate hike by the Fed, providing an opportunity for dollar bears. This sentiment is underscored by projections of 0.1% month-on-month inflation for headline and 0.2% for core, which would lead year-on-year rates to fall to 3.4% and 2.5%, respectively. A soft CPI print could lead to a bullish steepening of the yield curve and a softening of the dollar, particularly against procyclical currencies like the euro. Per the full note [source], the prospect of declining inflation could also support risk assets more broadly, positioning for favorable outcomes in the markets ahead.
Easing US price pressure dampen imminent Fed hike talk
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