Hatzius Says Cyprus Stalemate Isn’t Having Major Impact on U.S.Jeanna Smialek
Turmoil in Europe over plans to resolve Cyprus’s financial crisis is not having a major impact on the U.S. economy, said Jan Hatzius, chief economist at Goldman Sachs Group Inc.
“Most of the turmoil from Europe to the U.S. gets transmitted, not so much through the trade side, but really through financial conditions,” Hatzius said, speaking on Bloomberg Television’s “Market Makers” with Erik Schatzker and Sara Eisen. “At this point, I wouldn’t say that what’s going on in Cyprus and Europe more broadly over the last few weeks has a major impact on what we would expect to happen for the U.S. economy or the broader global economy.”
Hatzius estimated that the U.S. economy will grow at “just under” 3 percent in the first quarter and slow to 2 percent for the next two quarters.
“We think growth is going to be pretty slow for the next couple of quarters,” he said, blaming sluggishness partly on across-the-board federal spending cuts that took hold March 1. “Part of that is the sequestration.”
Still, economic expansion will pick up toward the end of 2013 and into 2014, Hatzius said, and the Federal Reserve will stop its most recent round of large-scale bond buying sometime next year.
“Our expectation is that they will continue to buy basically at the current pace through the remainder of this year, then scale down starting at the end of 2013 and then end QE in the course of 2014,” he said. “I don’t think we’re there yet.”
The Federal Open Market Committee is debating how long to continue $85 billion in monthly purchases of Treasuries and mortgage bonds. The committee, which is concluding a two-day meeting today in Washington, has said it will keep the main interest rate near zero as long as the jobless rate remains above 6.5 percent and inflation isn’t projected to exceed 2.5 percent.
Policy makers haven’t set a definitive end date for the securities buying, saying that it will continue until the labor market improves “substantially.”
Unemployment is unlikely to drop much in 2013, Hatzius said. The rate was 7.7 percent in February.