Goldman expects US core CPI to ease to 2.8% year-on-year in June
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
A notable rise in core PCE relative to core CPI, particularly due to financial services performance, would challenge the dovish narrative and potentially reverse recent dollar weakness. Such developments would depend heavily on how inflation narratives are shaped by upcoming economic data and testimony.
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. --- 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.
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