A note for caution on market-based inflation expectations

Goldman Sachs is out with a note saying that high inflation and high survey-based inflation expectations raise the bar for possible rate cuts this year. They add that survey data are muddied by respondents’ political leanings, but still can’t be ignored. They also keep a door open for cuts saying that deteriorating economic indicators could still push the Fed to cut interest rates.

Rising survey-based inflation expectations have been a new thing in 2025 and started to attract the attention from traders and policymakers. They are getting dismissed citing market-based inflation expectations which have been stable just a bit above 2%.

The thing is that market-based inflation expectations were a bit below 2% in January 2022 even when Core CPI in the US was at 6% during the same time. Below you can see the 5y5y forward inflation expectations which is the one Fed Chair Powell have been citing.

Markets tend to remain anchored near the 2% level because of the Fed’s inflation target unless there are black swan events that push them lower. As many successful traders know though, markets are not always right, so we shouldn’t take market-based expectations for granted and always have an open mind on the next potential path.

This article was written by Giuseppe Dellamotta at www.forexlive.com.