here it is again.....
Goldman Sachs changes outlook, sees spring easing
NEW YORK, Sept 11 (Reuters) - Higher risks tied to problems in Latin America and
recent declines in U.S. stock prices have
prompted Goldman Sachs to alter its outlook for U.S. growth and Federal Reserve
policy, the investment firm said on Friday.
''Rising risks associated with turmoil in Latin America and recent setbacks in U.S. stock
prices have caused us to shift away from
our strong growth view,'' Goldman said in its weekly economic analysis.
''We now expect that real GDP growth will drop below trend in 1999, rising just 1.7
percent over the four quarters of next year, versus a previous forecast of 2.7
percent,'' Goldman economists said.
Goldman said the slower growth forecast implied ''that the next move in Fed policy will
be an easing,'' rather than the tightening it had previously expected.
Noting that the Federal Open Market Committee (FOMC) has apparently already
backed away from its bias to tighten, Goldman said its best judgment is that the
easing will start next spring.
But it said the risks clearly lean toward a quicker move toward easing by the central
bank.
''By the end of 1999, we look for the federal funds rate to be 50 to 100 basis points
below its current 5-1/2 percent target level,'' Goldman said.
The Goldman economists warned, however, that the bond market already anticipates
substantial easing and may be disappointed if it does not happen right away.
But any backup in bond prices should be viewed as a buying opportunity, Goldman
said, as the rally has not yet run its course.
''By the end of 1999, we can see bonds trading down to five percent,'' Goldman said.
Goldman said it had also moderately lowered its inflation forecast and has substantially
reduced estimates of corporate profits to reflect tighter constraints on top-line
growth.
The investment firm noted that the August Producer Price data indicated that ''inflation is
nowhere to be found'' in the goods sector of the economy.
Goldman said so far, consumer attitudes were holding up quite well in the face of market
volatility.
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