Goldman Sachs said in a report that its forecast for the Federal Reserve to cut interest rates this year has been reduced from 1% to 0.75%, and reports of its rebound in underlying inflation have been greatly exaggerated. Core PCE inflation rose by an annualized 2.5% from September to November last year, slightly higher than the 2.3% in the previous three months, but lower than the 2.8% year-on-year increase, which is still in line with the continued decline. The report also pointed out that the Dallas Fed's revised average PCE inflation for September to November last year was 2.4% annualized PCE inflation, compared with 1.8% in November last year. With the labour market tightening back to 2017 levels, wage growth has slowed to an annualised rate of 3.9 per cent, in the 3.5-4 per cent range, and 1.5-2 per cent productivity growth over the next few years would be in line with 2 per cent inflation. Goldman Sachs also assumes that a 20 per cent increase in average US tariffs on Chinese goods and tariffs on European cars and Mexican electric cars would add 0.3-0.4 per cent to inflation next year. But the impact should fade after a year, unless there is a significant second-round impact through wages or inflation expectations. This would make it comparable to repeated VAT increases in other G10 economies, which typically do not leave a lasting impact on inflation or monetary policy. In addition, the 2018-2019 trade war tightened financial conditions enough to prompt the Federal Reserve to ease policy, arguing that the monetary policy risks posed by tariffs are at least two-sided.