At 8:30 PM Beijing time on Wednesday, the US July CPI data will be released, and this report carries far more weight than usual—it could become a "watershed" for the Federal Reserve's September interest rate decision. Goldman Sachs' chief economist and head of global investment research, Hatzius, stated in a media interview that he expects the July CPI reading to be similar to the modest performance of June, with overall CPI rising by approximately 0.05% month-on-month and core CPI by approximately 0.19%, both in line with or slightly lower than market expectations. Hatzius explicitly stated that Goldman Sachs predicts no further interest rate hikes this year, believing that natural downward forces such as the continued cooling of rent and wage inflation make further tightening unnecessary. Although Federal Reserve Chairman Warsh hinted at a possible adjustment to the preferred inflation gauge, Hatzius still expects core PCE to continue to be the Fed's primary focus.

CPI Forecast: Moderate readings will solidify the slowdown trend since June.

Hatzis expects July's CPI to show a modest reading of approximately 0.05% month-over-month overall and 0.19% core, in line with or slightly below market consensus. This would reinforce his view of a slowing inflation trend that began in June, and if confirmed, would ease pressure on the Federal Reserve ahead of its September meeting. Hatzis attributes the higher-than-expected inflation in the first five months of 2026 to several temporary factors: the transmission effect of tariffs, the boost to the overall index from oil prices, and the impact of the World Cup. He points out that the monthly transmission of tariffs has largely ended, but the year-over-year effect still contributes about 0.7 percentage points to core PCE inflation—which is currently at an annual rate of 3.3%. He expects this tariff drag to gradually approach zero over the next 6 to 12 months.

Labor Market: Goldman Sachs Sharply Downgrades Employment Trend

The July nonfarm payrolls report showed a job loss of 23,000, far below the expected increase of 80,000, prompting Goldman Sachs to sharply lower its forecast for monthly job growth from approximately 75,000 to around 5,000. Hatzius explained that this figure was derived by weighting average wage data from the past three months and household survey employment data from the past nine months—choosing a longer window because household surveys are noisier—to extract the underlying trend from monthly fluctuations. This sharp downward revision highlights the rapid deterioration of the labor market beneath the surface of monthly volatility.

Policy Outlook: No Interest Rate Hike Expected This Year

Hatzius explicitly stated that Goldman Sachs predicts no further rate hikes this year. He believes that natural downward forces, including the continued cooling of rent and wage inflation, make further tightening unnecessary, while acknowledging that the possibility of rate hikes still exists. Regarding the possibility of the Federal Reserve adjusting its inflation indicators, Hatzius said he still expects core PCE to remain the Fed's primary focus, even into 2027 and beyond. He believes Warsh's comments about potential changes to the indicators "leave room for open interpretation and require clarification." Regarding the 2% inflation target itself, Hatzius agreed with Warsh's firm stance, believing 2% is still the "correct number," and stated that a deviation of a few percentage points in the long term—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: Steady Growth but Inflation Remains a Persistent Problem

When asked about the overall state of the U.S. economy, Hatzius said it was "pretty good"—GDP growth of 2%-2.5% is expected over the next one to two years, broadly consistent with the long-term sustainable trend of the economy, with low and stable unemployment. However, he acknowledged that inflation remains a prominent issue following the excessive price increases of the past five years, while expressing confidence that the U.S. economy will still be on track to better inflation by 2027, although this process will take longer than initially anticipated.

Summarize

Goldman Sachs chief economist Hatzius expects July's CPI to be moderate—around 0.05% overall and 0.19% core—consistent with the slowdown trend in June. He attributes the higher-than-expected inflation in the first five months of 2026 to temporary factors such as tariff transmission, oil prices, and the World Cup effect, which are fading. Goldman Sachs has significantly lowered its monthly employment trend forecast to around 5,000, highlighting the rapid cooling of the labor market. Hatzius explicitly stated that Goldman Sachs predicts no further interest rate hikes this year, believing that continued cooling of rent and wage inflation makes further tightening unnecessary. He remains optimistic about the overall U.S. economy but acknowledges that inflation has been a prominent issue over the past five years. The CPI data will validate or revise this assessment.