According to the Zhitong Finance APP, a team of economists from Wall Street giant Goldman Sachs stated that the new round of tariff battles led by the Trump administration will bring a temporary impact on U.S. inflation data later this year rather than a long-term trend impact, and it is expected that this short-term inflation effect will dissipate by 2026. In a research report released this week, the bank's chief U.S. economist David Mericle predicted that driven by price increases related to tariffs, the core PCE inflation rate will slightly rise to 3.6% by the end of this year, before quickly retreating again next year.
This view echoes the cooling trend in inflation reflected in recent U.S. CPI data. In April, the annual CPI data in the U.S. fell to just a 2.3% increase, the lowest level since February 2021. Many economists have warned that tariff-driven price pressures may emerge in the coming months, but the difference in Goldman Sachs' macroeconomic research report is that it believes such impacts will be temporary.
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The Federal Reserve recently maintained the benchmark interest rate in the range of 4.25% to 4.5% and continues to aim for a 2% inflation target. Even though there has been some cooling recently, inflation indicators (CPI and PCE) are still slightly above the 2% target and are susceptible to new shock factors, including tariff policies.
Why is Goldman Sachs not too worried about the tariff battles?
Goldman Sachs' research report points out that the current timeline of inflation surges in the U.S. economy is distinctly different from that during the COVID-19 pandemic, mainly because the current U.S. economy, while having a high probability of a &#34;soft landing,&#34; has overall economic momentum that is relatively weak. The U.S. labor market may significantly cool down due to the pressure from tariffs, and wage growth may slow down, providing important space for the Federal Reserve to resume its rate-cutting path after the one-time impact of tariff policies dissipates.
Goldman Sachs emphasizes that compared to the inflation surge in the U.S. during 2021-2022, the current economic situation, along with the threats linked to U.S. consumer spending capacity, is relatively small, mainly because the tightness in the labor market has significantly eased, forward-looking wage indicators continue to decline, and U.S. household consumption capacity is no longer maintained at historically high levels due to fiscal transfers.
However, Goldman Sachs warns that if tariffs on specific countries are raised to &#34;discouraging&#34; levels or if tariff measures continue until 2026, inflation may remain elevated for a long time.
What is the underlying message?
Goldman Sachs' report can be seen as a message to Washington: to stop at the &#34;symbolic&#34; level, meaning that Goldman Sachs economists are telling the Trump administration to stick to symbolic measures rather than extreme hardline approaches.
Goldman Sachs emphasizes that the current round of tariffs may only relatively mildly and temporarily push up inflation, which the U.S. economy can still bear. However, if it escalates further—such as imposing excessively high tariffs on individual countries leading to supply shortages and long-term disruptions in global supply chains—it could prolong the global trade war, and U.S. inflation may show a sticky upward trend, severely limiting the Federal Reserve's operational space
In other words, behind Goldman Sachs' disguised comforting research report lies a subtle warning from Wall Street: if the U.S. government under Trump turns the trade war from a political stance into a long-term government policy, Wall Street may no longer buy into it.
Additionally, according to some Federal Reserve officials, there is currently an ongoing &#34;debate&#34; within the Fed: some policymakers are calling for the substantial impact of Trump's tariff policy to be viewed as a &#34;temporary inflation shock,&#34; prioritizing interest rate cuts to support U.S. economic growth; while another group believes that the medium- to long-term effects of tariffs may still be unclear, thus requiring more cautious monetary policy.
Minneapolis Fed President Neel Kashkari emphasized at a meeting hosted by the Bank of Japan on Tuesday that, given the economic growth uncertainties triggered by a new round of global trade wars and the &#34;paramount&#34; necessity of defending inflation expectations, the Fed needs to proceed with caution. In his prepared remarks, Kashkari pointed out, &#34;Global trade negotiations may take months or even years to fully resolve.&#34; He also mentioned that tariffs on intermediate goods take time to transmit to end consumers, and as time goes on, the risk of losing control over inflation expectations may increase.
Goldman Sachs' team of economists believes that the Fed is still likely to implement monetary policy normalization and interest rate cuts after the negative effects related to tariffs dissipate and the temporary inflation shock significantly eases. Goldman Sachs expects the peak inflation effects of tariffs to appear in the inflation reports from May to August and initially predicts the first rate cut to occur in December. The team of economists from Goldman Sachs now anticipates that the Fed will begin three rate cuts in December rather than the previously expected start in July.
Economists from another Wall Street giant, Barclays Bank, predict that the Fed will implement only one rate cut in 2025, followed by three rate cuts of 25 basis points each next year (expected to occur in March, June, and September 2026). Before a positive trade consensus is reached between China and the U.S. and significant reductions in each other's tariffs, Barclays' economists expect two rate cuts of 25 basis points each this year, occurring in July and September

Goldman Sachs economists stated that the new tariffs from the Trump administration will have a short-term impact on U.S. inflation, with the core PCE inflation rate expected to rise to 3.6% by the end of the year and then quickly decline next year. Unlike the inflation surge of 2021-2022, the current U.S. economy is weak, and a cooling labor market along with slowing wage growth makes the likelihood of sustained price increases lower. The Federal Reserve maintains interest rates in the range of 4.25%-4.5%, continuing to target a 2% inflation goal

- Goldman Sachs economists predict that the new round of tariffs led by the Trump administration will have a temporary impact on U.S. inflation, expected to dissipate by 2026.  
- They forecast a slight increase in core PCE inflation to 3.6% by the end of this year, followed by a rapid decline next year, aligning with recent CPI trends.  
- The report suggests that while current tariffs may only cause minor inflationary pressures, significant increases could lead to persistent inflation and limit the Federal Reserve's policy options.

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Goldman Sachs

Barclays

Goldman Sachs delivers a "calming pill" to the market: The inflation brought by tariffs is a short-term shock and is expected to quickly decline next year