Goldman Sachs Chief U.S. Economist David Mericle writes that the firm now expects a 25 basis-point hike at next week’s FOMC meeting vs. a hold that the bank expected previously. The latest CPI data have not changed the bank’s fundamental inflation view, but FOMC will want to avoid the market reaction that would likely follow from remaining on hold when the market is pricing a nearly 90% chance of a hike, Mericle writes in the research note. Goldman adds that it continues to think that all of the overshoot of the 2% inflation target can be attributed to one-time factors whose impact is likely to fade, that the improvement in core PCE inflation to a roughly 2.5% pace over the last three months is an early sign of this, and that the economy is not overheated, with limited rate hikes seen as being unlikely to appreciably offset the impact of supply shocks.
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