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“The inflation news is getting better and it’s likely to get quite a lot better in the second half of the year,” he said in a panel discussion hosted by the Council on Foreign Relations.
Hatzius expects the Federal Reserve to forgo raising interest rates at its meeting Wednesday, and then hike them in July, though he added that he did not have high confidence in that forecast. He then expects the Fed to hold rates steady before cutting them in the second quarter of next year.
US inflation ebbed in May, as consumer prices rose 4% from a year earlier, the slowest pace since March 2021, according to data released on Tuesday by the Bureau of Labor Statistics. After stripping out food and energy costs, core consumer prices 5.3% from a year earlier.
Goldman economists are forecasting that consumer prices will rise 3.5% in the fourth quarter from a year earlier. Core prices are projected to increase 4.3%.
Labor Market
Hatzius said US wage growth is slowing and the labor market is coming into better balance, as job openings decline and quits ease.
“I do feel very good about the soft-landing call” for the economy, he said. “We’re on track for below-trend, but still positive, growth.”
Most US economists as of last month saw a recession hitting the economy this year.
The drag on the housing market from the Fed’s rapid rate hikes is diminishing, while the hit to the economy from a tightening of credit standards in the wake of the failure of a number of regional banks is shaping up to be “pretty moderate,” he said.
©2023 Bloomberg L.P.
