Tags: Goldman | Hatzius | Fed | easing

Goldman’s Hatzius: Chance of Fed Stimulus Still Pretty High

Wednesday, 23 May 2012 06:44 PM

The chance the Federal Reserve will prop up the economy via monetary stimulus is quite high, says Goldman Sachs chief economist Jan Hatzius.

Even though home sales have shown improvement and the economy is showing signs of strength elsewhere, the Fed will likely stimulate the economy this year to give the country a jolt to face headwinds down the road.

"Given the financial conditions and given where we see the economy – the lost ground that needs to be made up – we think the case for additional monetary stimulus is still pretty good," Hatzius tells CNBC’s Fast Money.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

Since the downturn, the Federal Reserve twice stimulated the economy by buying bonds held by banks, injecting a combined $2.3 trillion into the economy in the process.

Under such policy, known officially as quantitative easing but dubbed by critics as printing money out of thin air, the Fed aims to push interest rates low to encourage investment and hiring.

Critics say the two rounds of quantitative easing, known widely as QE1 and QE2, have planted the seeds for inflation down the road, while supporters say the policy steers the country away from deflationary decline.

Expect QE3 to come this year.

"We do think there will be more monetary stimulus," Hatzius says.

The economy may slow as the end of the year approaches, when tax cuts and unemployment benefits expire and automatic spending cuts kick in, a combination dubbed by Wall Street as a fiscal cliff that could siphon hundreds of billions out of the economy and offset any growth next year.

The Congressional Budget Office (CBO) is warning that failure to address the fiscal cliff today could throw the country into a recession next year, with gross domestic product shrinking 1.3 percent in the first half.

"Given the pattern of past recessions ... such a contraction in output in the first half of 2013 would probably be judged to be a recession," the CBO says in a report, according to Reuters.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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Wednesday, 23 May 2012 06:44 PM
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