bloomberg.com/apps/news?pid= … L0qC8rIx_M
Goldman Says Deleveraging May Keep Fed Rate Low for ‘Years’ Simon Kennedy
Sept. 10 (Bloomberg) – The Federal Reserve may keep interest rates low for “many years” to help U.S. consumers and companies as they pare back debt, according to economists at Goldman Sachs Group Inc.
Sluggish spending as households reduce debt could lop as much as 2 percentage points from U.S. economic growth over the next three years, New York-based economists Peter Berezin and Alex Kelston wrote in a report released late yesterday. While not enough to threaten a long-term recovery, it may require the Fed to offset the weakness by keeping its benchmark rate unchanged through 2010, they said.
“It is hard to escape the conclusion that the Fed may need to maintain fairly low interest rates over a period of many years,” wrote Berezin and Kelston. “If you want to bring down leverage, you should keep monetary policy sufficiently accommodative to forestall a collapse in spending and a deflationary spiral.”
The Fed’s key rate is now near zero as it fights the worst recession since World War II. Keeping U.S. rates there until 2011 may represent an “attractive buying opportunity” for U.S. bonds and threaten to inflate asset bubbles in economies that tie their currency to the dollar, the Goldman economists said.
…(cont’d)
How about until the next bubble starts?Rates will be kept at or close to zero for so long,so many people will have six figure mortgages,how will rates ever go up again?
Prof - this one was specially for you!
Heard it on the radio this evening and had to dig out the link as I knew it was right up your street! GS even start talking about the next bubble!
Take a bow!
