Goldman's Hatzius Sees 25-30% Chance of Recession, Tax Expiration Risks, Quantitative Easing on 10% Unemployment (CNBC Video)

Jan Hatzius, Chief US Economist at Goldman Sachs, was on CNBC today. Here's a summary of what he said and the video.

  • 1) the inventory cycle (restocking) and fiscal stimulus was a temporary boost to firm demand in late 2009 and early 2010. That will likely turn into restraint in 2011.
  • "Underneath all that, we're still in a very very gradual final demand recovery, final demand has only been up a little more than 1% over the last year, so it's very very sluggish".
  • "I don't expect expect a double dip recession but I think there is a sizable risk" (he sees a 25-30% chance). "The significantly more likely outcome is no recession and a very moderate, gradual recovery".
  • "If everything (all tax cuts) were allowed to expire, as is the current legislation at the end of this year, that would be a major impact".
  • He sees more quantitative easing by the Fed late this year or early next year, triggered by a rise in the unemployment rate to 10%.
  • "I think the risks are tilted to the downside, that's to be expected if you think that there's a meaningful risk of recession"
  • *"The biggest risk is that there is not enough healing and underlying final demand (ex-the fiscal impact) to offset the fact that fiscal becomes a bit more of a headwind. That's probably the biggest risk. Then there's a risk of policy mistakes of course, for example full expiration of all of the tax cuts I think would be such a policy mistake, but I think it's really the sluggishness of the recovery to begin with"
  • There are parallels and differences between the U.S. today and Japan in the 1990s (watch the video).