Goldman Sachs indicates that high inflation and inflation expectations complicate the likelihood of interest rate cuts this year. They note that while survey data may be influenced by political views, it remains relevant to economic considerations.
Survey-based inflation expectations have gained attention in 2025, contrasting with stable market-based expectations just above 2%. Previously, market-based expectations were below 2% in January 2022, despite a Core CPI of 6%.
Market Stability And Inflation
Markets usually align around the 2% target set by the Fed, unless unexpected events cause fluctuations. Caution is advised as market expectations might not always reflect reality.
Goldman Sachs has made it clear that persistent inflation and the public’s expectations about future price increases make it harder for the central bank to justify lowering interest rates in the months ahead. While they acknowledge that survey results can be shaped by political leanings, they emphasise that these figures still play an important role in assessing economic conditions.
So far this year, surveys measuring inflation expectations have drawn more attention than in prior years. This contrasts with market-based indicators, which have remained slightly above 2%. A striking difference was observed in early 2022 when market measures of future inflation were under 2%, even as core consumer prices climbed at an annual rate of 6%. This disconnect highlights how pricing models don’t always move in lockstep with actual cost increases, raising questions about whether financial markets always provide a reliable signal.
In most situations, markets tend to settle around the Federal Reserve’s 2% target unless an unforeseen event upends those assumptions. Even under normal conditions, however, any expectation built purely on market movements carries some level of uncertainty. The gap between perceptions and reality has led to moments in the past where traders found themselves wrong-footed.
Balancing Market Signals
Given that, a thoughtful approach should be taken in the coming weeks. Historical patterns show that even when the path ahead appears clear, shifts in inflation sentiment can reshape outcomes. Aligning too closely with market-based projections without considering alternative indicators could leave gaps in decision-making. Recent economic data has reinforced the idea that actual outcomes do not always match what forward-looking pricing suggests. Those navigating price movements should be mindful that inflation expectations—whether based on surveys or market instruments—do not always converge with broader economic shifts.
We recognise that expectations are a core part of decision-making, but they should never be viewed in isolation. The difference between how inflation is perceived and how it actually plays out in economic data has caught many off guard before. Being aware of both signals makes it possible to avoid unnecessary surprises rather than reacting after trends have already shifted.
