Goldman Sachs Chief Economist Jan Hatzius Joins CNBC to Discuss His Outlook for the US Economy

Federal Reserve Policy Outlook:

• Goldman Sachs chief economist Jan Hatsias expects the Fed to execute one additional 25 basis point hike in December, though this remains data-dependent.
• The firm revised its forecast for the final tightening move from October to December following recent PCE data and Fed officials' speeches.
• Markets are currently pricing in three rate hikes, a level Hatsias deems unnecessary and overstated relative to the Fed's probable intent.
• A "one-and-done" scenario (foregoing the December hike) is considered possible if inflation data continues to show 0.2% monthly gains, though it is not the central bank's typical strategy.
• Key upcoming data points include the October CPI release, which Hatsias predicts will be "reasonably friendly" (approx. 0.2% increase) and likely influence decisions to skip an October hike.

Financial Conditions and Market Dynamics:

• When excluding equities, Goldman's financial conditions index indicates tightening to levels comparable to early 2025, driven primarily by rising long-term interest rates.
• Including equities, overall financial conditions are viewed as a "very small headwind" to growth rather than a major constraint.
• The U.S. economy is currently growing at a trend rate with a labor market that is broadly stable, despite conflicting signals between the U6 rate and job availability measures.
• Long-term interest rates face upward pressure from capital competition (e.g., hyperscaler issuance) and supply issues, creating less conviction regarding their future trajectory compared to short-term rates.
• Goldman's inflation forecast targets 2.2% by December 2027; non-hiking scenarios supported by benign data would not necessarily exert upward pressure on long-end rates.

Global Monetary Context:

• Eurozone core HICP inflation remains at 2.5% with modest rises despite energy vulnerabilities; the ECB is expected to limit tightening given recent sovereign bond market turmoil and tightening financial conditions.
• A resolution to the conflict in Iran would likely be viewed as a dovish development, potentially accelerating the path toward fewer rate hikes than currently priced by markets by mitigating inflationary fears.

Artificial Intelligence and Productivity:

• Goldman maintains its pre-existing projection of a 1.5 percentage point boost to long-term growth from AI, even after accounting for demographic headwinds and capital redirection.
• While recent advancements in AI capabilities exceed the firm's current model assumptions, no formal adjustments to forecasts have been made yet due to the expectation of gains spreading over a longer timeframe.
• Hatsias notes that the news flow on AI capabilities has become "even stronger" than internal modeling, warranting continued monitoring for potential future revisions.