The Federal Reserve will probably ease monetary policy further as the U.S. economy weakens, said Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York.
“The Fed will eventually move to additional monetary stimulus via asset purchases or other unconventional measures,” Hatzius said in a radio interview today with Tom Keene on “Bloomberg Surveillance.” Should the Fed opt for more securities purchases, he said, there is “no point in doing anything less than” $1 trillion.
Fed policy makers on Aug. 10 made their first attempt to bolster the economy in more than a year, saying they will maintain their holdings of securities at $2.05 trillion to prevent money from draining out of the financial system. The Federal Open Market Committee, in its statement, said “the pace of recovery in output and employment has slowed in recent months.”
Sales of previously owned U.S. homes slumped 27 percent in July, the National Association of Realtors said today in a report that pointed to further weakening of the economy. Hatzius, speaking before the home-sales data, predicted gross domestic product will expand at a 1.5 percent annual pace in the second half of the year, and unemployment will rise to 10 percent next year from 9.5 percent currently.
Yields on U.S. Treasury notes have dropped in response to signs of slowing growth.
“At this point the bond market is discounting a lot of the slowdown that I think we’ll see in the data,” Hatzius said. “In the near term, the pressure is probably still for bond yields to come down somewhat further, but I think most of it is discounted at these levels in the Treasury market.”
The yield on the 10-year note fell 10 basis points, or 0.10 percentage point, to 2.50 percent at 10:27 a.m. in New York. The 10-year note’s yield touched 2.4668 percent, a 17-month low. The two-year note yield touched a record low of 0.4542 percent.
The recovery “seems to be extremely modest” and the central bank’s “accommodative policy is appropriate,” Federal Reserve Bank of Chicago President Charles Evans said today in reply to an audience question after a speech in Indianapolis.
The Commerce Department this week will lower its estimate of second-quarter growth to a 1.4 percent rate from a previously reported 2.4 percent, according to the median forecast in a Bloomberg News survey of economists.
Hatzius said housing prices may fall a “little less” than 4 percent on average across the country in the next one to two years, as housing inventory remains swollen.
“Ultimately, the best predictor of what happens to house prices really is the amount of excess supply, and there’s still a lot of it,” he said.
Existing-home sales plummeted to a 3.83 million annual pace, the lowest in a decade of record-keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed. Demand for single-family houses dropped to a 15-year low.
The number of previously owned homes on the market rose 2.5 percent to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months’ supply of single-family homes at 11.9 months was the highest since 1983, the NAR said.
The median price increased 0.7 percent to $182,600 last month from July 2009.
Central bankers lowered their central tendency forecast for growth this year at their June 23 policy meeting to a range of 3 percent to 3.5 percent versus 3.2 percent to 3.7 percent in April, minutes of the June meeting showed on July 14.
Forecasts for the labor market were little changed, with the Fed expecting an unemployment rate of 9.2 percent to 9.5 percent. Minutes of their Aug. 10 meeting have yet to be released.