“There’s a Goldilocks flavor to it.”

So said Goldman’s Jan Hatzius in a note published during Monday’s US holiday session. (And here you thought Wall Street economists didn’t put in the long hours to justify their half-million and up salaries.)

Donald Trump might call it a disastrous hellscape, but the truth is, he’s stepping into a favorable domestic economic backdrop. Main Street’s still grappling with a price level crisis, but unless you want broad-based deflation (which typically only comes about during deep, deep recessions), that’s gotta be water under the bridge, not in the sense that the previous administration should be “forgiven,” just in the sense that there’s nothing anybody can do about it.

Anyway, Hatzius declared that “on Inauguration Day 2025, the US economy is in the sweet spot of healthy growth and gradual disinflation. On his estimates, the US economy expanded 2.6% last quarter, and will likely grow at or near that pace this year helped along by “solid” gains in real disposable personal income and “sturdy” business investment.

Goldman’s outlook remains more optimistic than the average economist surveyed by Bloomberg, but that gap’s shrinking commensurate with the steady flow of upbeat labor market and spending data, which recently included another hot headline NFP print and a robust read on control group retail sales. Hatzius also flagged “high expectations” among his peers for “the growth-positive aspects” of “Trump 2.0” (see no evil).

Crucially — and this is the Goldilocks bit — recent jobs data doesn’t suggest overheating, let alone a wage-price spiral, according to Hatzius. Instead, the US labor market’s exhibiting a “low-hiring/low-firing” dynamic, and a Goldman metric which rolls up various measures of labor market tightness now sits below where it sat in the two years leading up to the pandemic, a period during which, as Hatzius reminded investors, inflation ran below 2%.

The figure on the left shows the above-mentioned composite metric along with its components. On the right is Goldman’s wage tracker plotted with several widely-followed pay growth and comp metrics, all of which are within range of the threshold below which wage growth’s consistent with price stability as arbitrarily defined by the Fed (assuming 1.5%-2% productivity growth).

Of course, underlying inflation ran warm for four consecutive months from August to November, and although December’s core CPI readout (which catalyzed a sharp snapback rally across rates and bonds last week) was relatively benign, the fact is that MoM core CPI was warm in 2024 more often than it was cool, where “warm” means above 0.2%.

Hatzius isn’t too worried, though, and he said rates and bonds are overreacting. You might scoff at that assessment until you see the figure on the left, below, which suggests bond yields in the US are now more sensitive than they were when inflation was running six-handle and up.

“The underlying [inflation] trend has changed much less than one might think from the volatility in the market narrative, as well as the outsized bond market impact of month-to-month inflation surprises,” Hatzius wrote, adding that although the trend’s “occasionally obscured by month-to-month volatility, [i]nflation is trending down gradually.”

Note from the figure on the right that core PCE’s expected to print an uncomfortable 0.3% MoM on seasonal factors for January, but unless there’s a big overshoot, the YoY readout will probably continue to trundle lower.

As for the Fed, Hatzius said Goldman’s “confident” about two things. First, Jerome Powell’s on hold in January. Second, there’s no chance (or no appreciable chance) of a return to rate hikes “anytime soon.” “Beyond that, the picture is murky,” he wrote.

Speaking of murky pictures, Hatzius said US trade policy “remains in flux, and tariff news is likely to continue creating volatility in financial markets.” Put differently, Trump’s poised to inject volatility into one of the few places (equities) where it’s not running rampant (rates vol’s elevated and geopolitical vol’s off the charts).

Trump’s stepping onto a lot of very shaky stages, but on the domestic macro front, his job’s pretty easy: Don’t fritter away a Goldilocks economy and a stock market perched near record highs. How hard can it be not to squander a generous inheritance?