The inflationary pressures starting to grip a U.S. economy awakening from its COVID-19 pandemic slumber could have an unfortunate consequence that may weigh on economic growth, warns Goldman Sachs Chief Economist Jan Hatzius.
"Big increases of inflation expectations can give inflation pickups more staying power — that's a possibility," said Hatzius on Yahoo Finance Live. Hatzius notes that the increasing worker shortage in part caused by the extended unemployment top up and the auto shortage fueled by low semiconductor supplies are two components driving upside risks to inflation.
On Monday, Hatzius took a more formal crack at conveying his near-term concern on inflation.
Goldman's economic team led by Hatzius boosted its Consumer Price Index (CPI) forecasts "significantly further." Hatzius sees CPI increasing by 3.6% year-over-year in June, helping to drive full-year CPI to a 3.5% gain. CPI is forecast to increase 2.7% in 2022, per Goldman's estimates.
Relative to Goldman's forecasts in early May, its revised figures reflect increases of up to 125 basis points for this year and 33 basis points for 2022.
The CPI surged by 4.2% in April, which was way ahead of analyst estimates for a 3.6% increase.
Hatzius is maintaining — similar to other top economists on the Street — that the Federal Reserve is correct in thinking near-term inflationary pressures are transitory.
"I think all of these things [worker and auto shortage] are probably going to be much less of a factor once we get into the fall. So, I am not too worried about it. But in the short-term, it is an upside risk. Longer term, I think the key questions really are is the economy going to overheat and are we going to move far beyond the potential long-term sustainable level of household unemployment. If that were the case, then I think you would have to be more worried about inflation in the longer term. But we don't really expect that," Hatzius explained.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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