Back in winter, Goldman economists surprised many with their bullish outlook for the U.S. economy, when many were still expecting a recession. This time around, Goldman has another surprise prediction: the risk of a second coming of inflation is higher than that of an immediate recession.

With first quarter U.S. GDP growth of 2% and sales growth slightly higher than that, “if anything the economy has grown too quickly,” Struyven said. And with that, “the risk of a re-acceleration [of growth] well above the economy’s potential is a greater risk than the risk of an imminent recession.” 

Under normal circumstances, you’d expect everyone to cheer for higher economic growth. The reason not to do so now is that “we would risk having an imbalance again between supply and demand,” Struyven says, which in turn would put upward pressure on prices, causing re-inflation. 

Oil prices aren’t helping. Around the long July Fourth weekend, the U.S. saw its busiest day for flights ever and a record-breaking weekend for car travel. The upsurge in travel—present around the world—combined with a tightening of oil production led by Saudi Arabia and its OPEC+ partners, puts oil prices on a slightly upward path again for the remainder of 2023, adding to headline inflation pressures.  

Out-of-control inflation would put policymakers in a bit of a rough spot. On the one hand, everyone wants to see the economy grow, wages rise, and labor force participation increase. On the other hand, more inflation could make the dreaded scenario of stagflation down the road more likely, forcing further tightening. 

For now though, the more likely scenario is that core inflation (excluding energy) will come down to where it needs to be, albeit it at an agonizingly slow pace. As recent interest rate hikes take their effect, Struyven and his colleagues expect core inflation to fall to 3% on a monthly annualized pace by the end of 2023. 

If that materializes, the end of rate rises would be in sight, and with it the likelihood of a soft landing for the U.S. economy: “The base case is another rate hike, with the risk of potentially a second one,” Struyven said. “But we’re much, much closer to the end than to the beginning.” 

We’ll take it, for now.

More news below.

Peter Vanham
peter.vanham@fortune.com
@petervanham

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