The U.S. July CPI data is set to be released at 8:30 p.m. Beijing time on Wednesday, carrying unusual weight as it could serve as a pivotal factor for the Federal Reserve's September interest rate decision.

Goldman Sachs Chief Economist and Head of Global Investment Research, Jan Hatzius, stated in an interview that he expects the July CPI reading to mirror the moderate performance seen in June, with headline CPI rising approximately 0.05% month-over-month and core CPI at roughly 0.19%, both in line with or slightly below market expectations. Hatzius clarified that Goldman Sachs forecasts no further rate hikes this year, citing natural disinflationary forces such as persistently cooling rent and wage inflation, which render additional tightening unnecessary. Despite Fed Chair Christopher Waller hinting at a potential shift in the preferred inflation gauge, Hatzius still expects core PCE to remain the Fed's primary focus.

CPI Forecast: A Moderate Reading Would Cement the Slowdown from June

Hatzius projects the July CPI will show a moderate reading of approximately 0.05% month-over-month for headline and 0.19% for core, aligning with or slightly below consensus. This would reinforce what he sees as a disinflationary trend that began in June. If confirmed, it would alleviate pressure on the Fed ahead of its September meeting. Hatzius attributed the higher-than-expected inflation in the first five months of 2026 to several temporary factors: the pass-through effects of tariffs, oil prices boosting the headline index, and impacts related to the World Cup. He noted that the monthly tariff pass-through has largely ended, but the year-over-year effect still contributes about 0.7 percentage points to core PCE inflation, which currently stands at a 3.3% annual rate. He expects this tariff drag to gradually taper to zero over the next six to twelve months.

Labor Market: Goldman Sharply Downgrades Employment Trends

The July nonfarm payrolls report showed a decline of 23,000 jobs, far below the expected gain of 80,000, prompting Goldman Sachs to significantly lower its estimate of the monthly job growth trend from roughly 75,000 to about 5,000. Hatzius explained that this figure is derived from a weighted average of average payroll data over the past three months and household survey employment data over the past nine months, with the longer window chosen because household survey data is noisier. This approach aims to extract the underlying trend from volatile monthly readings. This sharp downgrade underscores the rapid deterioration of the labor market beneath the surface of monthly volatility.

Policy Outlook: No Rate Hikes Needed This Year

Hatzius explicitly stated that Goldman Sachs forecasts no further rate hikes this year. He believes natural disinflationary forces, including persistently cooling rent and wage inflation, make further tightening unnecessary, while acknowledging that the possibility of a rate hike still exists. Regarding the potential shift in the Fed's inflation metric, Hatzius said he still expects core PCE to remain the Fed's primary focus even as we move into 2027 and beyond. He viewed Waller's comments on possibly changing the metric as "open to interpretation and requiring clarification." On the 2% inflation target itself, Hatzius agreed with Waller's firm stance that 2% remains "the right number," and suggested that a prolonged deviation of a few percentage points, such as the average inflation of 1.6%-1.7% over the two decades before the pandemic, would not pose a serious problem.

Economic Outlook: Solid Growth, but Inflation Remains a Stubborn Issue

When asked about the overall state of the U.S. economy, Hatzius described it as "pretty good," forecasting GDP growth of 2%-2.5% over the next one to two years, broadly in line with the economy's sustainable long-term trend, with low and stable unemployment. However, he acknowledged that inflation remains a prominent issue following excessive price increases over the past five years. He also expressed confidence that the U.S. economy remains on track toward better inflation conditions as it enters 2027, even though this process has taken longer than initially expected.

Summary

Goldman Sachs Chief Economist Jan Hatzius expects the July CPI to be moderate, with headline month-over-month at about 0.05% and core at 0.19%, consistent with the June slowdown trend. He attributed the higher-than-expected inflation in the first five months of 2026 to temporary factors like tariff pass-through, oil prices, and the World Cup effect, which are now fading. Goldman Sachs has sharply downgraded its monthly jobs trend to around 5,000, highlighting the rapid cooling of the labor market. Hatzius clearly stated that Goldman Sachs forecasts no further rate hikes this year, as persistently cooling rent and wage inflation make additional tightening unnecessary. He is generally optimistic about the U.S. economy but acknowledges inflation remains a prominent issue of the past five years. The CPI data will either validate or challenge this outlook.