Some interesting comments came out from Goldman Sachs today. Goldman economists raised the odds of recession in their latest forecast but they also said they believe the Fed will act even more aggressively to prevent it.
Goldman this morning changed its forecast for the Fed funds rate to 3% by mid-2008, a whole point lower than its last forecast. "The main reason is that the worsening housing downturn has pushed the risk of a U.S. recession in 2008 to 40-45%, from around 30% previously," the Goldman economists said in a note.
"We're certainly well below consensus," said Goldman senior economist Ed McKelvey on "Squawk on the Street." "We think the housing situation is by no means over and probably will not be over throughout 2008 either," he said. "The reason for that is because there's a mixture of secular and cyclical stuff going on in housing. You're not only correcting the bubble, you're correcting all the loan excesses."
The Goldman economists say an overall recession isn't in their baseline forecast. They cut their real GDP growth forecast just slightly to 1-1/2% on a fourth quarter to fourth quarter basis from 1-1/4%. The economists note the Fed officials have not signaled they plan to ease further but they are expected to change their minds when the data shows more of the housing-related damage or financial markets continue to be "strained."
