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5 Critical Questions

5 Critical Questions

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Published by Kostas Georgioy
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Categories:Types, Business/Law
Published by: Kostas Georgioy on Jan 10, 2012
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11/08/2012

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 joliprint.com/mag
Goldman’s 5 Critical Questions For 2012
A
s US markets remain in hibernation for a few
more hours, Goldman picks out the ve cri
-tical questions that need to be considered in
the context of 2012’s economic outlook. Jan Hatzius
and his team ask and answer a veritable chart-festof crucial items from whether US growth will pickup to above-trend (and remain ‘decoupled’ from
Europe’s downside drag), whether ination will nd
its Goldilocks moment this year and if the US housing
market will bottom in 2012 (this one is a stretch).
Summarizing all of these in a nal question, whether
the Fed will ease further, the erudite economistcontinues to expect an expansion of LSAP (focused
on Agency MBS) and an ocial re-adjustment toan ination targeting environment. Their view re
-mains that
a nominal GDP target combined withmore (larger) QE improves the chances of theFed meeting its dual mandates (unemploymenttarget?) over time but expectations for this ra-dical shift remain predicated on considerably worse economic performance in the economy
rst (as they expect growth to disappoint)
. Wefeel the same way (worse is needed) and recallourrecent
(rstly
here, thenhereandhere) focus
on the shift in the balance of power between the Fed
and ECB balance sheets (
forced Fed QE retaliation
soon?
).
Goldman Sachs: 5 Questions For 2012.
 
Today’s focus article discusses what we see as the
5 most important questions facing the US economy
in the coming year.First,
 will US growth pick up to an abovetrend
pace?
We think not. Underlying growth is probably
considerably weaker than implied by our 3.3% trac-
king estimate for Q4 GDP growth; tight oil supplies
act as a “speed limit” for global growth; scal policy
remains a drag on growth; and the spillovers fromthe European recession are likely to increase.Second,
how much will the European crisis -the biggest downside risk - subtract from US
growth?
Our baseline estimate is 1 percentage point,
but the uncertainty is large. On the one hand, wehave not seen much impact yet...
Thursday, January 5, 2012
     h    t    t    p    :     /     /    w    w    w .    e    c    o    n    m    a    t    t    e    r    s .    c    o    m     /     2     0     1     2     /     0     1     /    g    o     l     d    m    a    n    s  -     5  -    c    r     i    t     i    c    a     l  -    q    u    e    s    t     i    o    n    s  -     f    o    r  -     2     0     1     2 .     h    t    m     l     ?    u    t    m_    s    o    u    r    c    e   =     f    e    e     d     b    u    r    n    e    r     &    u    t    m_    m    e     d     i    u    m   =    e    m    a     i     l     &    u    t    m_    c    a    m    p    a     i    g    n   =     F    e    e
 Page 1
 
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Goldman’s 5 Critical Questions For 2012
On the other hand, a failure of peripheral European
economies to stabilize due to a “paradox of thrift”
situation in both the public and private sectors poses
a downside risk for Europe and ultimately also theUnited States. 
Third,
 will the US housing market bottom in
2012?
We think yes. With excess supply diminishing
gradually...
Thursday, January 5, 2012
     h    t    t    p    :     /     /    w    w    w .    e    c    o    n    m    a    t    t    e    r    s .    c    o    m     /     2     0     1     2     /     0     1     /    g    o     l     d    m    a    n    s  -     5  -    c    r     i    t     i    c    a     l  -    q    u    e    s    t     i    o    n    s  -     f    o    r  -     2     0     1     2 .     h    t    m     l     ?    u    t    m_    s    o    u    r    c    e   =     f    e    e     d     b    u    r    n    e    r     &    u    t    m_    m    e     d     i    u    m   =    e    m    a     i     l     &    u    t    m_    c    a    m    p    a     i    g    n   =     F    e    e
 Page 2
 
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Goldman’s 5 Critical Questions For 2012
 ...and valuations back to “equilibrium,” we expectthe house price decline to end in 2012H2, althoughthe recovery is likely to look very U-shaped. Fourth,
 will ination be too high or too low by
late 2012, relative to the Fed’s target?
Too low, inour view. The commodity price impulse is waning
and there is still plenty of excess capacity. We ex-
pect core ination to fall back to 1¼% by yearend,
clearly below the Fed’s implicit target.Fifth,
 will Fed ocials ease further?
We thinkyes, probably via purchases of agency MBS (and
perhaps Treasuries) announced in the rst half of the year. We also expect Fed ocials to provide a
forecast path for the funds rate and adopt an ocialination target at the January 24-25 FOMC meeting.
Thursday, January 5, 2012
     h    t    t    p    :     /     /    w    w    w .    e    c    o    n    m    a    t    t    e    r    s .    c    o    m     /     2     0     1     2     /     0     1     /    g    o     l     d    m    a    n    s  -     5  -    c    r     i    t     i    c    a     l  -    q    u    e    s    t     i    o    n    s  -     f    o    r  -     2     0     1     2 .     h    t    m     l     ?    u    t    m_    s    o    u    r    c    e   =     f    e    e     d     b    u    r    n    e    r     &    u    t    m_    m    e     d     i    u    m   =    e    m    a     i     l     &    u    t    m_    c    a    m    p    a     i    g    n   =     F    e    e
 Page 3

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