Goldman Sachs Expects Delayed Inflation Target with Trump Presidency
According to Goldman Sachs, a Trump presidency is likely to lead to increased US trade tariffs, particularly against China, which will delay inflation from reaching the Federal Reserve’s 2% annual target in 2025.
Despite current inflation data showing disinflation remaining sluggish, the brokerage expects inflation to peter out further in the remainder of this year. Goldman Sachs’ analysts predict that the Fed’s preferred inflation gauge, the personal consumer expenditures (PCE) price index, will slow to a 0.16% average pace in the final two months of 2024.
However, the analysts warn that tariffs will delay a return to 2% inflation in 2025. They estimate that tariff increases on imports from China and autos will raise the effective tariff rate by 3-4 percentage points, which would boost core PCE inflation by 0.3-0.4 percentage points next year, leaving it at 2.4% in December 2025.
While inflation resulting from tariffs is expected to be a one-time increase, it will not deter a trend of falling inflation. Goldman Sachs expects inflation to fall to an annual pace of 2.4% in December 2025 from 3.2% in December 2024, amid easing housing and transportation costs.
Sequential measures of underlying inflation have eased in recent months, and high inflation prints earlier this year are seen as more residual seasonal factors rather than a reacceleration in inflation. The brokerage notes that President-elect Donald Trump’s plans to impose higher tariffs on several countries, including China, Canada, and Mexico, and his pledge to impose a 10% tariff on all imports and 60% tariff on imports from China, are driving concerns over higher US import tariffs.
