The U.S. economy expanded at a pace of 3.5% annual growth during the months from July to September fueled by automotive and real estate stimulus. Now that the recession is over, analysts have begun the debate of how strong the recession will be.
JP Morgan Chase (NYSE: JPM)’s chief economist, Bruce Kasman, told the Wall Street Journal in an interview that he predicts the U.S. will continue growing at an annualized rate of about 3.5% for the remainder of the year. Goldman Sach’s (NYSE: GS) chief economist, Jan Hatzius, paints a less optimistic picture and predicts that economic growth will taper off to just 1.5% by the end of the year.
In their interviews with the WSJ, both economists said the climb out of the recession will be slower than most would hope. Kasman commented, “We’re going to get more growth than people expect, but a lot less than we need.” Hatzius added, “We do have some improvement [in our forecast] and I do think there will be some healing on the surface but I don’t think it’s enough to offset the loss of the stimulus that’s been behind a large part of the improvement we’ve seen over the last six or nine months.”
“I also think we’ll probably start to see some job growth in the course of 2010, starting in the second quarter, but we’ve got the unemployment rate rising through 2010 and that’s a direct reflection of the fact that GDP growth just isn’t strong enough,” said Kasman.
Both economists predict that the Federal Reserve won’t be tightening up its monetary policy until the beginning of 2011. Kasman said, “The Fed’s job here is to reflate the economy and I think when they see success on that front they’ll start to act potentially aggressively, but we don’t have the Fed tightening until sometime in early 2011.” Hatsius believes that the risks of deflation outpace any potential risks from inflation, citing a potential double dip recession that could drop prices even lower.
Kasman and Hatsius agreed that there will likely be a second round of economic stimulus from Congress. Kasman commented, “I would agree with Jan that if his forecast is tracking there’s a need and I think an important need for more stimulus.”
