Goldman July CPI commentary pointed to a September Federal Reserve hold after Wednesday’s inflation report, though the bank still expects a slightly firmer core PCE reading.
Goldman Sachs Asset Management said the July CPI data support keeping rates steady at the September meeting. Lindsay Rosner, the firm’s head of multisector fixed-income investing, said the contained core inflation reading was encouraging. She added that it built on signs from the prior month’s report that underlying price pressures are easing.
However, Rosner did not treat the latest CPI report as the final word. Another inflation report will arrive before the September meeting. Therefore, she said the outlook could still change depending on that next release.
Goldman July CPI View and Fed Hold
The source article said markets leaned toward a September hold after the in-line CPI print. Goldman added support to that view with its own reading of the data. Meanwhile, the article said equities were mixed on the day of the CPI release.
A separate note from Goldman Sachs economists focused on July core PCE, which the source described as the inflation gauge the Fed prefers. The bank expects core PCE to rise about 0.2% from the prior month. That would be a little above both core CPI and the broader consensus estimate.
Core PCE Overshoot Tied to Fees
Goldman said the expected overshoot does not reflect a broad pickup in price pressures. Instead, the bank tied it to portfolio management fees. According to the source, those fees should add about 8 basis points to the index because of strong equity market gains in the second quarter.
Because fee income rises with asset values, a stronger stock market can lift that part of the PCE basket. As a result, the headline figure can move higher without a real shift in underlying costs. Goldman said residual seasonality and composition effects also help explain the gap.
More importantly, Goldman flagged upcoming changes to the PCE methodology. The bank said those changes could add notable volatility to future readings. Additionally, they could pull down the annual core inflation rate over time.
Taken together, Goldman July CPI analysis kept the bank’s broader view intact. The source said Goldman still expects the Fed to leave rates unchanged for the rest of the year.
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Source: InvestingLive
