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Jan Hatzius: Here’s What Gets The Fed To Move

With so many storm clouds on the horizon, Goldman economist Jan Hatzius reveals what he thinks ultimately gets the Fed off the sidelines.

In a live interview on CNBC’s Fast Money Halftime Report, Htazius said not until the Fed’s dual mandates for inflation and employment take a sharper turn for the worse – not until then, will the Fed make an aggressive move.

Looking at those dual mandates, in January the Fed declared that its long-run target for inflation was 2%.

It’s other mandate, employment, is less specific. The Fed wants full employment but has also said it was not appropriate to adopt a fixed goal. The Congressional Budget Office has suggested full employment is around 5.5%.

“Yes, inflation is currently below targets,” explains Hatzius. "And they will be missing their employment mandate by a significant amount through the end of 2014,” he adds.

But that's not enough -- deterioration has to get worse, says Hatzius

“When we see further downward revisions on inflation and employment – that’s what will get the Fed to move.”

And Hatzius fully expects the economy to get worse. “The latest information on the economy has been on the softer side,” he says. "Although they did take a substantial step (by extending Operation Twist) we think they will have to do more. And there are options – further extension of guidance for the funds rate and an asset purchase program – we think we see both of them."

On a related note, Hatzius made headlines earlier in the week when he said the Fed’s decision to extend Operation Twist would help the economy in the near term but made for trouble at year’s end.

That's because at the same time Twist ends in late December the US will also be facing the fiscal cliff - the period when a slew of tax cuts and stimulus programs come to an end.

Fast Money executive producer John Melloy wrote about the phenomenon at length. Click here to go to Beware the Looming ‘Monetary Cliff’: Hatzius

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Posted by CNBC's Lee Brodie

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Trader disclosure: On June 22, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jon Najarian is long AAPL CALL SPREADS; Jon Najarian is long NFLX CALL SPREADS; Jon Najarian is long INTC CALL SPREADS; Jon Najarian is long WNR CALL SPREADS; Jon Najarian is long WMT CALL SPREADS; Jon Najarian is long AMZN CALL SPREADS; Jon Najarian is long FB CALL SPREADS; Jon Najarian is long MS CALL SPREADS; Jon Najarian is long DDMG; Jon Najarian is long CIGX; Jon Najarian is long CME; Jon Najarian is long CBOE; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long CE; Pete Najarian is long NSFT; Pete Najarian is long SBUX; Pete Najarian is long FB; Pete Najarian is long TCK; Pete Najarian is long HPQ; Pete Najarian is long PEP; Pete Najarian is long GE; Pete Najarian is long SCCO; Pete Najarian is long INTC; Pete Najarian is long NOK; Pete Najarian is long calls AAPL; Pete Najarian is long calls BAC; Pete Najarian is long calls CS; Pete Najarian is long calls HAL; Pete Najarian is long calls HIG; Pete Najarian is long calls JOY; Pete Najarian is long calls XCO; Pete Najarian is long calls THC; Pete Najarian is long calls MMR; Pete Najarian is long calls KEY; Patty Edwards is long PM; Patty Edwards is long MCD

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