Hatzius Says He Expects Fed Will Maintain Asset Purchases

Jan Hatzius, chief economist at Goldman Sachs Group Inc., said he expects the Federal Reserve will decide to maintain its pace of monthly asset purchases when policy makers meet next month.

“We’re expecting an increase in the pace of balance sheet expansion from the current $40 billion per month to something like $85 billion a month,” Hatzius said today in an interview on Bloomberg Television’s “Market Makers” with Sara Eisen. “That basically implies that the pace of asset purchases of longer-term Treasuries and mortgage-backed securities stays at the current $85 billion number or somewhere very, very close to that.”

The policy-making Federal Open Market Committee said on Oct. 24 it would continue its record easing strategy until the labor market improves “substantially.” The central bank is having the most profitable year on record, according to quarterly financial reports released by the Fed today in Washington. It earned $69.4 billion in the first three quarters of 2012, up from $58.2 billion the same period last year, the reports said.

Hatzius said “fiscal drag” is the biggest headwind facing the U.S. economy.

Above Trend

“If it wasn’t for that fiscal drag, I think we’d be looking at above-trend growth right now,” Hatzius said.

President Barack Obama and Republicans in Congress are seeking ways to avert the so-called fiscal cliff, the more than $600 billion of automatic tax increases and spending cuts that take effect in January if lawmakers fail to reach a compromise.

“It’s a pretty weak economy in early 2013 but then I think as the year progresses we start to see a gradual acceleration,” Hatzius said of the outlook if the fiscal cliff is averted and Europe contains its debt crisis. “We have 2.5 percent growth in the second half of the year, and we expect further acceleration into 2014 and 2015.”

The U.S. economy expanded more than previously estimated in the third quarter of this year, revised figures from the Commerce Department showed today in Washington. Gross domestic product grew at a 2.7 percent annual rate, up from a 2 percent prior estimate.

Editors: Kevin Costelloe,

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