Goldman Sachs Hints That a Bruising Inflationary Outbreak Is Coming

Judging by the tone at Goldman Sachs, people better load their pantries and buy dividend stocks ... because nasty inflation is coming. 

And while people take precautions, perhaps the Jerome Powell Fed should consider jacking up interest rates more than four times this year. 

"During most of the post-crisis recovery, inflation risks have been subdued - however, concerns with "overheating" and higher inflation are now being raised given a combination of strong global growth and diminishing economic slack, increasing labor market tightness, expansionary fiscal policy vs. only gradual normalization of monetary policy in the U.S., risks from trade protectionism / retaliation, and the potential for higher commodity spot prices as inventories continue to draw down," writes Goldman Sachs strategist Michael Hinds.

Long sentence, but worthy of careful thought by investors. Here are some takeaways from this depressing note:

  • More recently, signs of higher wage pressures have also been emerging, with average hourly earnings showing 3-month/3-month annualized growth rates above 3%.
  • The gradual shift towards more hawkish expectations of the Fed (both by the market and in the FOMC's own economic projections) has not alleviated all concerns that monetary policy may still be too accommodative, particularly in light of recent tax cuts and spending.
  • While there is still very little certainty to date, additional tariffs on imports from China in the coming weeks under "Section 301" and the risk of retaliatory tariffs by trading partners (both of which we now view as likely) could have much larger inflationary effects for the U.S.
  • Given continued robust demand growth (particularly in EMs) and, in our view, OPEC likely to overshoot on the inventory rebalancing, we see spot brent reaching $82.50/bbl by mid-year.

What TheStreet's Newsroom Thought About Fed Day

Wednesday was quite the day for markets as Jerome Powell strode to the stage. Watch what captured the attention of TheStreet.

https://t.co/7TAc2hmHtq

— Brian Sozzi (@BrianSozzi) March 21, 2018

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