Even the sharpest minds in finance are pivoting — Goldman Sachs no longer expects the sustained tariff-driven inflation many feared. Recent research, including insights from St. Louis Fed’s Javier Bianchi, challenges the old narrative that tariffs would send prices sky-high indefinitely.

This reversal reflects a growing consensus: tariffs act more like a demand shock, reducing overall spending power, rather than sparking long-term inflation.

The data is clear:

• Major US retailers are seeing prices dip since the May tariff pause with China, across both imported and domestic goods.

• Inflation expectations among consumers and markets have softened significantly.

• The labor market, while still tight, shows easing wage pressures — a key factor in controlling inflation.

Goldman’s chief economist Jan Hatzius now expects a one-time inflation boost from tariffs, with core inflation peaking and then easing in 2026. The forecast? Inflation rebounds to about 3.6% later this year but declines afterward.

Why the shift?

• The economy is expected to grow modestly, with slow employment growth and cooling demand.

• Household spending power is no longer buoyed by massive pandemic fiscal transfers.

• Alternative inflation indicators, like new tenant rents, show deceleration.

The bank’s cautionary note is clear: the inflation rebound will be far less extreme than previous surges and shouldn’t threaten the Federal Reserve’s plans for monetary normalization.

What about the doubters?

Hardline anti-Trump voices predicted runaway inflation into the stratosphere, but current data and survey expectations suggest those fears were exaggerated.

Key Takeaways:

• Tariffs, while disruptive, may not drive persistent inflation.

• Inflation expectations among consumers and markets are moderating.

• The labor market is softening wage inflation pressures.

• The Fed appears on track to normalize policy once inflation slows.

• Broader economic indicators hint at a more stable inflation outlook.
  
  

  “Goldman Sachs' change of stance is a powerful signal that the market’s inflation fears may have been overblown. For global traders and investors, this means recalibrating strategies in a world where tariffs matter but don’t dictate the economic landscape.”