Inflation cooling off, how likely is it? Goldman Sachs: The Fed will ignore December CPI "noise" and focus on January data.

Goldman Sachs stated that the latest release of the U.S. Consumer Price Index (CPI) data on December 18th is unlikely to substantially alter the near-term policy outlook for the Federal Reserve. The bank believes that policymakers will instead focus on the subsequent inflation data that will be released before the January Federal Open Market Committee (FOMC) meeting. In a report following the release of the CPI data, Goldman Sachs stated that while overall and core indicators continue to show progress in slowing inflation, today's data is "unlikely to have an impact on the Fed's decision-making." The bank emphasized that the December inflation data to be released on the eve of the January Fed meeting will have greater significance for policymakers in assessing whether price pressures are continuing to cool. Goldman Sachs' analysis indicates that the recent underperformance of core CPI compared to expectations is driven primarily by technical and time-related factors, rather than a broad easing of potential inflation. Specifically, the bank pointed out significant drag from the housing component, stemming from statistical methodology issues related to missing October data; additionally, core goods prices showed weakness due to late pricing data collection in November. In addition to the CPI, Goldman Sachs estimates that the Federal Reserve's preferred inflation gauge - the core Personal Consumption Expenditures (PCE) Price Index - had an average monthly increase of 0.12% in both October and November. The bank estimates a 0.10% increase in October and a 0.14% increase in November, which would lower the November core PCE year-on-year growth rate from 2.83% in September to 2.66%. While this trajectory supports the argument for a downward trend in inflation, Goldman Sachs warns against overinterpreting the recent softness in the CPI. The bank pointed out that the U.S. Bureau of Labor Statistics (BLS) has not clarified how it will address the identified data distortion issues, which increases the possibility of some recent drag factors reversing in the coming months. Goldman Sachs expects the soft performance of the housing component to partially rebound in future data releases, while commodity inflation may slightly accelerate again in December. Therefore, the bank believes that the Federal Reserve will remain patient, and policymakers may rely on a wider range of data rather than a single CPI reading when making policy decisions in early 2026.