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Hatzius: Two main economic scenarios “fairly bad” and “very bad”

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This all ties together …

  • Neil Irwin at the WaPo has an interesting graphic on the output gap and unemployment: Why it doesn’t feel like a recovery
  • Ezra Klein at the WaPo reports on some comments from Goldman Sachs chief economist Jan Hatzius and professor Paul Krugman at the “America’s Fiscal Choices” conference in Washington today: Will America come to envy Japan’s lost decade?
    Perhaps the most depressing exchange of this morning’s conference — and believe me, there were plenty to choose from — was between Goldman Sachs’s Jan Hatzius and Paul Krugman.

  • And from Bloomberg: Hatzius Says Fed Easing Measures Will Probably `Fall Short’
    Hatzius, 41, said his two scenarios for the U.S. economy were “pretty bad” and “very bad.”

    The economy will grow between 1 percent and 2 percent through early next year, with unemployment drifting up “to somewhere around 10 percent, maybe a little above 10 percent,” he said. … “It’s going to take many years before you get back to anything approaching full unemployment, and 2014 is very likely too early,” said Hatzius.

  • And from a research note today, Hatzius wrote:
    We see two main scenarios for the economy over the next 6-9 months—a fairly bad one in which the economy grows at a 1½%-2% rate through the middle of next year and the unemployment rate rises moderately to 10%, and a very bad one in which the economy returns to an outright recession. There is not much probability of a significantly better outcome.

    Between the two scenarios, the fairly bad one—slow growth, rising unemployment, but no outright recession—has significantly higher probability … However, the recession scenario also has significant probability (we still think about 25%-30%).

    Calculated Risk

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