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Jan 30 - 12:55 PM

Goldman Sachs & Morgan Stanley: US Core PCE & Employment Cost Index (ECI) Expectations

By eFXdata  —  Jan 30 - 11:34 AM

Synopsis:

Both Goldman Sachs and Morgan Stanley expect soft core PCE inflation prints for December, with weakness in core goods driving the deceleration. Goldman sees core PCE at 0.16% m/m, while Morgan Stanley expects 0.17% m/m. The employment cost index (ECI) is also forecast to soften to 0.8% q/q, reflecting slowing wage growth.

Key Points:

  1. Goldman Sachs:

    • Core PCE: +0.16% m/m, 2.79% y/y.
    • Headline PCE: +0.25% m/m, 2.55% y/y.
    • Q1 inflation prints expected to be softer than last year, bringing core PCE down by 25bps by February and 48bps by April (excluding tariff effects).
  2. Morgan Stanley:

    • Core PCE: +0.17% m/m, driven by weak core goods inflation (electronics, fading auto price pressures).
    • Headline PCE: +0.27% m/m, slightly stronger due to firm gasoline inflation.
    • Employment Cost Index (ECI): +0.8% q/q, 3.7% y/y (down 0.2pp), reflecting:
      • Deceleration in the Atlanta Fed’s wage tracker.
      • End of unionized worker catch-up wage growth.

Conclusion:

Both Goldman and Morgan Stanley expect soft core PCE inflation, with year-over-year disinflation continuing into Q1 2025. The ECI is also set to decline, reinforcing a gradual easing of wage pressures. However, tariff-related risks remain a wildcard for the inflation outlook in the coming months.

Source:
Goldman Sachs Research/Market Commentary

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