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Federal Reserve Slows Rate Increases As Goldman Sachs Predicts Deflation

Firms like Goldman Sachs expect a drastic decline in US inflation in 2023, predicting personal consumption expenditures (PCE) will fall to as low as 2.9% by December 2023 versus the current measure of 5.1%. 

Goldman Sachs expects the CPI to slow its pace of growth with a 0.4% increase M/M compared to an estimated 0.7% consensus. Goldman Sachs’ deflation prediction is based on slower wage growth and easing in supply chain snafus, which lowers the cost of production and logistics. 

The Goldman Sachs prediction has been bore out by core inflation numbers, in which inflation sans food and energy costs rose by just 0.3% in October. The previous two months saw a 0.6% rise the previous two months. 

The Goldman Sachs prediction comes as Fed governor Christopher Waller warned last month that the central bank might consider slowing the pace of rate increase at its next meeting, but that should not be seen as a “softening” in its commitment to lowering inflation. 

Data in November showed that US inflation had been slowing more than expected in October, raising bets that the Fed could temper its tightening cycle after four consecutive 75 basis point hikes this year. 

Furthermore, cotton prices have fallen from $1.04 per pound to $0.8706 per pound in the week ended October 13, 2022, according to the Department of Agriculture. The  US Department of Agriculture report noted a shift in supply and demand, highlighting a decrease in global production and worldwide mill use, which is down 3 million bales of cotton to 115.6 million bales. 

One veteran trader expects a bad recession could bring prices down even further. “If the global economy and domestic economy suffers enough, and we go into a deep enough recession, then you should likely see a scenario where you have prices start to fall,” veteran trader Gareth Soloway told The GoldSilverBitcoin Show. “If you have unemployment that goes to 20%, people aren’t buying luxury goods, for instance. It’s just not happening in that environment.”

He adds: “Food and energy are the two that you can’t really avoid. People can trade down to a hamburger from McDonald’s versus a steak, but prices will start to fall if the recession gets bad enough.”

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