Goldman Sachs bond leader says inflation bigger threat than recession for now

Goldman Sachs Asset Management co-head of fixed income Kay Haigh suggests today’s flat-to-lower CPI inflation data from March appears backward looking and maybe not relevant as trade wars play out.

Core CPI, which the Fed prefers because it excludes volatile food and energy prices, just dropped from 3.1% in February to 2.8% in March as reported this morning. And the full CPI reading dropped from 2.8% to 2.4%.

While this is a favorable Core CPI reading, Haigh could be right because tariff policy hasn’t hit the economy yet.

His full quote is below, and there are a few things worth noting:

– Tariffs pose both inflation and recession risks and this quote considers both.

– Haigh is saying the Fed is likely to continue its hawkish pause stance, meaning it won’t hike or cut, but it’s more worried about inflation than recession for now — and therefore more likely to hike.

– But eventually the Fed may cut rates if tariffs slow the economy down sharply.

The Fed will take its punches either way for not raising rates (to prevent inflation) or cutting rates (to prevent recession) fast enough.

The next Fed meeting is May 6-7.

Here’s the full quote from Goldman’s Haigh:

Today’s softer than expected CPI release feels backward looking given the large changes to trade policy seen in recent days. Going forward the Fed is likely to face a difficult trade-off as tariff-driven price increases start to feed through to the inflation data and activity remains soft. We expect the Fed’s initial reaction to be cautious, but the risks remain that a sharper than expected slowdown in the economy could result in a resumption of the Fed’s easing cycle.

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Reference:

– Goldman’s Haigh on Fed balancing inflation vs. recession after March CPI