JPMorgan Chase vs. Goldman Sachs: Are tariffs and oil prices "short-term pain" or "long-term bomb"?

David Kelly, Chief Global Strategist of J.P. Morgan Asset Management, expressed optimism about the outlook for the US economy on Thursday, believing that the current turmoil in the oil market and concerns related to tariffs are only temporary negative factors that will gradually dissipate in the coming months. In an interview, Kelly admitted that the institution has adjusted its second-quarter GDP growth expectations due to lower-than-expected tax refunds and sustained pressure on oil prices. However, he emphasized that one should not overly focus on recent fluctuations. However, another faction represented by Goldman Sachs provided a completely different conservative assessment and warned of the long-term costs of tariff policies. Kelly pointed out, "The resumption of oil supply in the Persian Gulf is an inevitable outcome." He emphasized that the US will eventually need to reach an agreement with Iran in order to rebuild the normal supply order in the global energy market. Regarding the trend of inflation, Kelly predicts that the Consumer Price Index (CPI) year-on-year increase will reach a level of 3.5% to nearly 4% in June, and then significantly decline. He anticipates that with the decline in oil prices, tariff reductions, and falling housing costs, the inflation rate will drop to the Federal Reserve's 2% target by the end of the year, and further decrease below that level by 2027. Kelly also predicts that Congress will pass some form of economic stimulus measures in the summer, possibly including tariff rebate checks, to support the economy before the November election. Looking at the long-term economic outlook, Kelly believes that the US economy's potential growth rate is about 1.5%, and it will need to rely on productivity improvements brought by Artificial Intelligence (AIEQ) to offset the impact of the declining labor force age and maintain economic growth momentum. In contrast, Goldman Sachs Chief Economist Jan Hatzius pointed out through detailed modeling analysis that the burdens brought by tariffs are far from short-term pains, and their core costs will be directly borne by American consumers. Goldman Sachs research data predicts that with the further advancement of tariff policies, the proportion of costs borne by American consumers may increase from around 20% in the initial stage to over 60%. This cost shift mechanism will directly lead to a significant increase in the core Personal Consumption Expenditures (PCE) price index and may continue to disrupt the process of cooling inflation in the next two to three years, forcing the Federal Reserve to significantly delay the timetable for returning to the 2% inflation target. In assessing the actual impact on economic growth, the difference between the two investment banks is also very clear. David Kelly tends to believe that the US economy has enough resilience to withstand this wave of volatility, maintaining a relatively optimistic expectation of a soft landing. In comparison, Goldman Sachs adopts a more pessimistic forecast, believing that tariff policies will be a significant "headwind" for US economic growth in 2025. In its latest macro report, Goldman Sachs estimates that tariffs could drag annual GDP growth by approximately one percentage point, leading to growth forecasts for that year to be lowered to around 1%. Goldman experts believe that only when the delayed drag of tariffs gradually lessens by 2026, and with the implementation of tax reduction policies, the economy may truly stabilize. Overall, this debate on the "nature of inflation" reflects Wall Street's deep concerns about the future direction of monetary policy. If, as J.P. Morgan says, the pressure is only temporary, then the Federal Reserve will have more room for interest rate cuts to support the economy; but if Goldman Sachs' "persisting pressure" theory comes true, global investors may have to face a harsh reality of a longer-lasting higher interest rate environment.