FYI | Jan 10 2008
By Rudi Filapek-Vandyck
Goldman Sachs chief economist Jan Hatzius has revised his view on the US economy, now putting the odds of the world’s largest economy falling into recession this year at 100%.
In a note to the investment bank’s clients in the US, Hatzius states: “We expect economic activity to contract modestly through late 2008, followed by a gradual recovery in the course of 2009. Fed officials are likely to respond by cutting the funds rate target to 2.50% by late 2008.”
The shift in view follows similar shifts by other experts elsewhere following the release of worse than expected economic data over the past few days, though few leading brokerages have joined Merrill Lynch thus far in calling a US recession unavoidable.
According to Hatzius the coming US recession is likely to last 2-3 quarters and should be relatively mild by historical standards. Goldman Sachs predicts a cumulative decline in real GDP of only about 0.5% (not annualized).
Goldman Sachs now anticipates the Federal Reserve will cut the fed funds rate “aggressively” to 2.50% by late 2008, with a 50-basis-point cut expected at the January 29-30 FOMC meeting while calling it a “reasonable chance” that Congress and the Bush administration will agree on a temporary tax cut later this year to help stimulate the US economy.
10-year Treasury note yields are expected to decline to 3.50% by late summer.
