Goldman Sachs chief economist Jan Hatzius discussed his outlook on the USA's economic prospects for 2025, the potential role of tariffs in Trump's second term, and the Federal Reserve's latest interest rate decisions in an interview.

So far, Hatzius maintains his prediction of three rate cuts by the Federal Reserve in 2025, reasoning: "I believe many of the fundamental reasons for disinflation remain intact. It is difficult for me to see how we can reverse this potential inflationary process. If you listen to Powell's remarks at the press conference, you will find that he seems to say the same thing. I agree with this."

Hatzius expects the inflation environment to remain manageable and to continue moving towards the Federal Reserve's 2% target.

He added that while specific risks, such as tariffs, might lead to a temporary rise in inflation, underlying economic adjustments (wages, labor market) support the disinflationary trend. Sticky price components and seasonal effects will gradually align with the overall disinflationary pressures, exacerbating the trend of declining inflation.

Specifically, Hatzius expects that by the end of 2025, the core Personal Consumption Expenditures (PCE) inflation rate will drop from the current 2.8% to 2.4%.

This revised forecast reflects a moderate upward adjustment due to expected tariff impacts (previously expected at 2.1%).

As for the impact of tariffs, Hatzius anticipates that tariffs will increase inflation by about 30 basis points (0.3%). The economists at the bank are consistent with similar adjustments made by the Federal Reserve at the recent FOMC meeting, which also considered inflationary pressures related to tariffs.

Some components of inflation, such as Autos Insurance and Other industries that adjust prices annually, have contributed to the rise of backward-looking inflation expectations. However, Hatzius expects these effects to weaken over time, leading to a slowdown in year-on-year price increases, especially at the beginning of 2025.

Hatzius pointed out that the potential drivers for disinflation moving forward include labor market rebalancing: wage growth is slowing, which helps reduce inflationary pressure. The labor market is gradually adjusting, aiding in the reduction of cost-push inflation; economic trends: the sustained disinflation trend is supported by broader economic stability and a slowdown in price adjustments in areas that previously experienced high inflation.

Additionally, Hatzius emphasized that the likelihood of the 'January Effect' in 2025 is smaller, meaning that the price increase from December to January will be less pronounced compared to previous years. This will help lower the year-on-year inflation rate and improve the inflation outlook.

Despite some fluctuations in inflation data (for example, higher numbers in September and October), Hatzius remains confident for several reasons: improvements in underlying inflation drivers; good wage growth and labor market conditions; and November data indicating that inflation has started to slow.

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