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Easing Part II Will Follow Disturbing Signs: Goldman

Following Friday’s disappointing US jobs data, Goldman Sachs Chief US economist is calling for quantitative easing 2.0 and additional stimulus measures.

Speculation is mounting that the Federal Reserve could announce additional QE measures -- where central banks use tactics other than interest rates to increase the money supply -- on Tuesday when it decides on interest rates.

And chief economist Jan Hatziussaid that with a number of disturbing signs out there the authorities can now justify further easing via unconventional measures or fiscal measures.

"If the committee decides on more asset purchases, the amount would be at least $1 trillion," Hatzius wrote in a research note.

"On the monetary side, the possibilities include additional purchases of (Treasurys) and mortgage-backed securities, as well as TALF-like structures -- i.e., special purpose vehicles that lend to non-banks using equity provided by the Treasury and debt provided by the Fed," he said. "Whether these will happen anytime soon is another matter."

Further QEvia additional buying of Treasurys or mortgage-backed securities does not yet have the backing of the entire Federal Open Market Committee, which will probably need to see more data before signing off on such a move.

Hatzius said he believes a TARP-like stimulus could be more effective than asset purchases but notes the Fed would need "unusual and exigent circumstances" to justify such a move.

"“On the fiscal side, we hope that Congress passes the extension of emergency unemployment insurance, continued aid to state and local governments, and at least a temporary extension of the bulk of the 2001/2003 tax cuts beyond the end of 2010," he said.

"Although it is a fairly close call, we now expect the FOMC to announce that they will reinvest the pay down of mortgage-backed securities in the bond market at next Tuesday’s meeting," Hatzius added. "This would be a 'baby step' in the direction of renewed unconventional easing, although it would probably be packaged as a decision to prevent a gradual tightening of the overall stance."

The comments came after Goldman cut its 2011 growth forecast for the US economy following Friday’s weak jobs data.