June 18, 2023 (MLN): Markets are too optimistic about how fast inflation in the United States will fall, according to a note from strategists at Goldman Sachs (GS.N) cited in a Bloomberg report on Saturday.
Inflation is expected to decline further, but not as quickly as the markets do. “The pace of cooling in inflation will be slower than what the markets are pricing,” the note said.
Markets are ignoring the potential for "delayed-onset inflation" in sectors such as healthcare, the strategists wrote, the report added.
The strategists wrote that investors could be assuming that a sharp deceleration in U.S. economic growth will lead to a more rapid easing of price pressures. But the strategists, according to the Bloomberg report, saw limited chances for those factors to bring down inflation.
The U.S. Federal Reserve left interest rates unchanged on Wednesday but signaled in new projections that borrowing costs may still need to rise due to a slower inflation decline.
The Goldman strategists recommended that investors who share their viewpoint on inflation buy one-year swaps to bet on inflation realizing higher than current market pricing, it reads.
