Fed's Impact From Further Easing Would Be Moderate, Goldman's Hatzius Says
A new round of monetary easing by the Federal Reserve would probably provide a mild boost to the economy, said Jan Hatzius, chief economist at Goldman Sachs Group Inc. in New York.
“We’re talking about a moderate impact,” Hatzius said today in a conference call, discussing the effect should the Fed stage a new round of bond purchases, a policy known as quantitative easing.
“It would be significant enough from the perspective of economic forecasters but wouldn’t really be enough to make the difference between an economic outlook that is deeply negative to extremely positive,” Hatzius said. A total of $1 trillion in bond purchases would improve stability in financial markets and increase real GDP by 0.3 percentage point to 0.4 percentage point, he said.
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, hampered by an unemployment rate that has stayed above 9 percent all year. Fed presidents Jeffrey Lacker of Richmond, Richard Fisher of Dallas and Thomas Hoenig of Kansas City have voiced opposition to more Fed action. Policy makers plan to meet in Washington on Sept. 21.
Additional Fed purchases of bonds would prove less beneficial because financial markets are under less stress than during 2008 and 2009, Hatzius said. “The next round of asset purchases, if there is such a next round, would have a somewhat smaller effect on broad financial conditions,” he said.
If Fed officials engage in further easing, Hatzius said, they may announce their purchases in increments, rather than announcing a large “shock and awe” sum. “I now think there is more thought given to a more gradual option as well,” he said.
Hatzius said he doesn’t expect the Federal Open Market Committee to ease further at their meeting next week.
“I think that’s fairly unlikely,” he said.
Hatzius forecasts a slowing recovery, saying “that support from fiscal policy is going to start turning into a drag.”
“House prices in our view are likely to renew their decline over the next year,” he said.