The Fed may have beaten back inflation and skirted a recession for now, Goldman Sachs says

• The Fed has curbed inflation without causing a recession, Goldman Sachs' chief US economist said.
• There's "a lot of signs that inflation will fall quite a bit further," David Mericle said.

The Federal Reserve appears to have beaten back inflation and skirted a recession for now, according to Goldman Sachs' chief US economist.

In a "Goldman Sachs Exchanges" podcast episode, David Mericle shared his views on the US economy, inflation, and what the Fed's likely to do next.

Mericle said there's "a lot of signs that inflation will fall quite a bit further." They include a rebalancing of the US labor market, and falling short-term inflation expectations.

"I think we're in a situation where, with a lag, we should expect inflation to largely normalize," Mericle said.

As for the fact that energy prices are on the rise again, Mericle said it's a "mild annoyance rather than a game changer" for inflationary pressures. He noted, however, that the Fed still has work to do in its battle against inflation, specifically in bringing it down to its 2% target.

"And so the best guess is that we'll get back to 2%, but by no means are we definitively there or even close enough. So too soon to say that we've beaten this problem," he said.

Inflation in the US has substantially cooled to around 3% in recent months, down from a 40-year high of over 9% last summer, at least in part because of the Fed's steep interest rate hikes. The Fed's next policy meeting is scheduled for this month, but Mericle said the central bank is unlikely to increase rates in September. He also penciled in the Fed's first rate cut for the second quarter of 2024.

Moreover, Mericle dismissed fears of a looming recession triggered by the central bank's inflation fight. "I just don't think that there's that much risk of monetary policy miscalibrating and causing a recession at this phase," he said.