From the Wall Street Journal's Real Time Economics blog:
Goldman Sachs says the Fed will cut the federal funds rate target to 3% by the second quarter of next year from 4.5% now to “forestall recession.”
That’s down from its previous forecast of 4%. The worsening housing slumped has upped the odds of recession to between 40% and 45%, the firm says in a note to clients today, from 30%. The firm sees the economy growing an annualized 1.5% this quarter and just 1% in each of the first two quarters of next year but to avoid recession thanks to this more aggressive response from the Fed.
“Although Fed officials have given no signs that they plan to ease significantly further, we expect them to change their minds as the housing-related damage becomes more visible in data, anecdotal reports about business activity, and/or conditions in financial markets remain strained,” the firm says. –Greg Ip