Probability of Fed Easing Above 50%: Hatzius
The weak jobs report virtually guarantees the Federal Reserve will take some kind of action at its policy meeting next week, Jan Hatzius, Goldman Sachs’ chief economist, said on Friday.
Nonfarm payrolls increased just 96,000 in August after a 141,000 rise in July. The unemployment rate did tick down to 8.1 percent from 8.3 percent as more people left the labor forces. (Read More:New Jobs at 96,000, Missing Expectations; Rate Hits 8.1%.)
Hatzius characterized the U.S. economic recovery as "very sluggish," adding that there hasn't been a major change in the pace of growth. Hatzius saidthe economy is in a roughly 2 percent growth environment.
While the probability of additional action from the Federal Reserve was already high, “I think the probability that that easing action includes not just language about the funds rate, but also asset purchases, QE, is now solidly above 50 percent,” told CNBC’s “Squawk on the Street.”
Hatzius conceded, however, that quantitative easing (QE) only helps at the margin.
“We have to realistic about the extent to which it’s going to help,” Hatzius said. “There aren’t a lot of instruments on the table that would really make a major difference. So the Fed is looking for things that help at the margin.”
He added that QE is one and lengthening the forward guidance on keeping interest rates low into 2015 is another. “Not super powerful,” he noted about either option.
Goldman’s base case is that any easing will be formulated as an open-ended asset purchase program of around $50 billion per month.