US Midyear Outlook: Geopolitical Shocks, the New Fed Era, and Growth

The US economy faces a period of stabilization as inflation trends toward 2% following a series of one-time supply shocks, including tariff impacts, AI-related price mismeasurement, and geopolitical tensions. David Mericle, an economist at Goldman Sachs, notes that while the June CPI print was an outlier, it signals the beginning of a softer inflation trajectory for the remainder of the year. Labor market resilience persists, with job growth consistently outpacing the break-even rate despite higher oil prices and potential consumption slowdowns. Consequently, the Federal Reserve is expected to maintain its current policy stance, avoiding rate cuts as the economy shows no signs of overheating. While the war in the Middle East remains a significant wild card for future inflation, the current outlook suggests a steady, albeit mediocre, GDP growth path around 2% for the near term.