Goldman Sachs Chief Economist Jan Hatzius Talks Inflation
Jan 7, 2025
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Jan Hatzius, the Chief Economist at Goldman Sachs, shares valuable insights into inflation trends and the Federal Reserve's actions. He discusses how the potential tariffs proposed by President-elect Trump could slow down the decrease in inflation. Hatzius also predicts three interest rate cuts this year, despite current market fluctuations. He dives into the economic implications of these tariffs and rising populism in Europe, shedding light on their potential impact on growth and monetary policy.
Goldman Sachs' Jan Hatzius suggests that inflation could decrease more rapidly if President-elect Trump's proposed import tariffs are not implemented.
He anticipates the Federal Reserve will cut interest rates three times in 2025 to normalize them closer to an equilibrium rate.
Deep dives
Economic Growth and Optimism
The current economic climate shows signs of strength, with strong growth forecasts set at approximately 2.5% for the year. Despite inflation concerns, there are indications that it will continue to decrease, moving from 2.8% to about 2.4% by year-end. The rebalancing of the labor market also suggests a more constructive environment, with signs of lower job utilization compared to pre-pandemic levels. This positive economic outlook is partially offset by the need for rate adjustments as the Federal Reserve aims to normalize interest rates.
Impact of Fed Policy and Tariffs
The Federal Reserve may implement three rate cuts in 2025 to align the funds rate closer to equilibrium rather than strict easing. Current high rates are approximately 100 basis points above many estimates for an equilibrium funds rate. Additionally, expected tariffs on imports from China and the European Union could slightly hinder growth while contributing to moderate inflationary pressures. This dual impact highlights the complexity of navigating economic policy amid evolving trade dynamics.
Populism and Exogenous Risks
The rise of populist movements across Europe and the U.S. introduces potential risks to global economic stability, influencing fiscal and trade policies. This shift could lead to increased volatility and unforeseen consequences due to rising nationalism and shifts in political alliances. Moreover, ongoing developments concerning Federal Reserve appointments may further complicate monetary policy decisions in response to these political changes. The combination of these factors requires economists to account for exogenous shocks more significantly than in previous decades.
Goldman Sachs Chief Economist Jan Hatzius says inflation would come down quicker if President-elect Donald Trump does not institute tariffs on all imports. Trump has promised 10% to 20% across-the-board tariffs on all imported goods. Hatzius also says he expects the Federal Reserve to cut interest rates three times this year. He is joined by Bloomberg's Matt Miller, Katie Greifeld, and Sonali Basak.