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Tuesday, October 05, 2010

Hatzius: Two main economic scenarios "fairly bad" and "very bad"

by Calculated Risk on 10/05/2010 09:11:00 PM

This all ties together ...

  • Neil Irwin at the WaPo has an interesting graphic on the output gap and unemployment: Why it doesn't feel like a recovery

  • Ezra Klein at the WaPo reports on some comments from Goldman Sachs chief economist Jan Hatzius and professor Paul Krugman at the “America’s Fiscal Choices” conference in Washington today: Will America come to envy Japan's lost decade?
    Perhaps the most depressing exchange of this morning's conference -- and believe me, there were plenty to choose from -- was between Goldman Sachs's Jan Hatzius and Paul Krugman.
  • And from Bloomberg: Hatzius Says Fed Easing Measures Will Probably `Fall Short'
    Hatzius, 41, said his two scenarios for the U.S. economy were “pretty bad” and “very bad.”

    The economy will grow between 1 percent and 2 percent through early next year, with unemployment drifting up “to somewhere around 10 percent, maybe a little above 10 percent,” he said. ... “It’s going to take many years before you get back to anything approaching full unemployment, and 2014 is very likely too early,” said Hatzius.
  • And from a research note today, Hatzius wrote:
    We see two main scenarios for the economy over the next 6-9 months—a fairly bad one in which the economy grows at a 1½%-2% rate through the middle of next year and the unemployment rate rises moderately to 10%, and a very bad one in which the economy returns to an outright recession. There is not much probability of a significantly better outcome.

    Between the two scenarios, the fairly bad one—slow growth, rising unemployment, but no outright recession—has significantly higher probability ... However, the recession scenario also has significant probability (we still think about 25%-30%).