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Goldman Sachs Economist: Tariffs to Have Minimal Long-Term Inflation Impact, Fed Expected to Cut Interest Rates

David Mericle, chief U.S. economist at Goldman Sachs, has projected that inflationary pressures stemming from former President Donald Trump’s tariff policies will likely be short-lived, downplaying the possibility of lasting effects on consumer prices. According to a recent report from The Daily Hodl, Mericle also predicts that the Federal Reserve (Fed) will reduce interest rates three times by the end of the year, signaling a potential easing of monetary policy.

In a conversation with CNBC, Mericle indicated that the Federal Reserve might begin implementing rate cuts within the next two months. He stressed that the inflationary effect of tariffs on the economy is transient at best. “The latest data reveals that the labor market and broader economy don’t currently demand an immediate rate cut,” he explained. Moreover, Mericle pointed out encouraging trends in inflation metrics, noting that core inflation is steadily aligning with the Fed’s long-term 2% target.

According to Mericle, the Federal Reserve could commence its rate-cutting cycle as early as September, with three cumulative reductions expected by year’s end. Addressing widespread inflation concerns, he reassured, “There’s no compelling reason to overreact to recent inflation trends.” Mericle added that the labor market is nearing equilibrium, where supply and demand are better balanced, and dismissed fears of a wage-price spiral reminiscent of earlier inflationary periods. He further emphasized that while tariffs might cause short-term price fluctuations, they're unlikely to significantly alter inflation expectations in the long run.

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Tariff-Driven Inflationary Pressures Set to Be Temporary

Mericle provided a favorable outlook on the U.S. economy, highlighting key shifts in labor market dynamics compared to more inflation-sensitive periods. He noted, “Today’s labor market isn’t as overheated as it was in 2022, when inflation fears were at their height.” This evolving labor market landscape, he argued, reduces the likelihood of tariffs inducing prolonged inflationary effects.

Delving deeper into the subject, Mericle reaffirmed that the inflationary impact of tariffs is unlikely to persist over time. He foresees further stabilization in supply-and-demand dynamics, a development that will likely temper any significant economic disruption linked to tariff policies. While some near-term price volatility may still surface in monthly data, Mericle maintains that overall economic conditions favor price stability and moderate inflation moving forward. This optimism is driven by the belief that inflation momentum—where past inflation drives future price hikes—has eased considerably.

In conclusion, Mericle’s analysis suggests that the U.S. economy is well-positioned to weather the temporary impact of tariffs while maintaining its path toward inflation control and economic stability. As the Federal Reserve prepares to potentially reduce interest rates three times by the end of the year, Mericle’s insights paint a picture of cautious but meaningful optimism for the months ahead.

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