①Goldman Sachs believes that the November CPI data is unlikely to substantially alter the Fed's short-term policy; the Fed is expected to focus more on the December CPI data. ②Goldman Sachs also warned that future inflation data may reverse, and the Fed will rely on a broader range of data series to formulate its policies.
Cailian Press reported on December 19 (edited by Liu Rui) that the latest U.S. November CPI data, released this Thursday Eastern Time, once brought joy to the market: both the headline and core CPI figures for November came in below expectations, prompting markets to increase bets on the Federal Reserve cutting interest rates next year.
However, Goldman Sachs, a Wall Street investment bank, believes that this CPI report is unlikely to substantially change the Fed’s short-term policy outlook. The bank noted that Fed policymakers will place greater emphasis on the December CPI figures to assess the true level of U.S. inflation.
Is the November CPI Data Unlikely to Influence the Fed?
Goldman Sachs stated that although the November CPI report showed signs of easing in both headline and core inflation indicators, this report is “unlikely to have a significant impact on the Federal Reserve.” It pointed out that before the Fed’s interest rate decision in January next year, the December CPI data will be released, at which point the Fed will clearly focus more on that updated inflation report.
Goldman Sachs also noted that the unexpected decline in core CPI in the November report was primarily driven by technical and time-related factors, rather than a broad-based easing of overall inflationary pressures.
Specifically, in this report, housing-related inflation data was notably lower than long-term trends, significantly dragging down the overall index. However, the cooling of housing-related data is likely due, on one hand, to technical reasons related to missing October data and, on the other hand, possibly linked to the later timing of price collection in November.
Aside from CPI, Goldman Sachs estimates that the Fed's preferred inflation gauge—the core Personal Consumption Expenditures (PCE) price index—rose by an average monthly rate of 0.12% in October and November. Goldman Sachs forecasts that U.S. PCE will rise by 0.10% month-over-month in October and by 0.14% in November, bringing the annual core PCE rate for November to 2.66%, down from 2.83% in September.
Incidentally, the official release date for the November Personal Consumption Expenditures (PCE) and core PCE data has not yet been confirmed by U.S. authorities.
Future Data Could Still Reverse
Goldman Sachs warned that investors should not overinterpret the weak CPI data. The bank pointed out that the U.S. Bureau of Labor Statistics has yet to clarify how it will address the identified data distortions, which also implies that there may be a risk of reversal in this set of data in the coming months.
Goldman Sachs also expects that some of the weakness in housing prices will change when future data is released, and goods inflation may see a slight rebound in December.
Therefore, Goldman Sachs believes that the Federal Reserve will remain patient on its path to interest rate cuts, and Fed officials are likely to rely on a broader range of data series when formulating policy decisions early next year, rather than focusing solely on the current individual CPI data point.
Editor/KOKO