Macro questions and market strength

I think it's fair to say it's been a pretty interesting start to the year with the new Trump administration's policy announcements coming fast and furiously since the inauguration. So what impact do they have on the economy and on markets? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm sitting down once again with Jan Hatzius, head of Goldman Sachs Research and the firm's chief economist, and Dominic Wilson, senior advisor in the global markets research group. Jan, Dom, it's great to have you back on exchanges and to continue the dialogue we began last November soon after p

to be with you. Yeah. Thank you. And

when I last spoke to you and Dam in November, we were discussing your Outlook report for 2025. It was entitled with a question, which was, will Tailwinds trump tariffs? And I think it's fair to say that the answer at that time was probably, but we've now seen several announcements. We have a better sense, not a complete sense, of course, but a better sense of the tariff policy coming through in particular and many other Trump policies. So has your thinking shifted? Would you still answer the question the same way? I

would still answer it exactly the same way, both in the sense that I think the tailwinds are probably going to trump the tariffs, but also that there's still a probably there because we actually still don't know just how pervasive the tariffs are going to be. Of course, there have been some surprises in terms of the details. Generally, a little bit less focus on China, a little bit more focus on other things. And at the margin, it looks like the increase in the effective US tariff rate might be a little bit higher than what I would have said three months ago. We were thinking three percentage

Let me grab onto the inflation point really quickly because I think that is a primary concern in the markets right now, and we did get another set of inflation data that was broadly interpreted as hotter than expected. So that doesn't concern you at all is what I'm hearing.

Not if I look at the measure that's most important to the Fed, which is core PCE after the CPI and PPI data. We think core PCE 0.3%, thirty basis points on the month, which is in line with or even a touch below what we were expecting before the CPI and PPI numbers for January. It is a higher number, of course, than the sequential pace that we've been seeing, but it was predictable that it would be a somewhat higher number because of the well documented January effect. The tendency of sequential inflation to be higher and higher than the seasonal factors can necessarily adjust for in months lik

if you think about how the markets have reacted to all of this news, so the tariff news and then some of this inflation news, Is there anything surprising about how the markets are pricing this? I

think mostly what's happened, and it reflects again some of the things that we talked about, is that it's become more complicated. I think the last few months of twenty twenty twenty four was relatively simple. We were essentially moving towards pricing the kind of growth picture that we've had in our forecasts, and you had a pretty consistent upgrade to growth across a range of assets. You had equities go up. You had yields go up. You had the dollar stronger. I think what's happened, particularly coming into the beginning of the year, is that the trade offs across that group of trends has bec

If we think about how the markets have digested a lot of the tariff news, one thing that I think has been pretty clear has been the strength of the dollar. That seems in som