Jan Hatzius, chief U.S. economist at the Goldman Sachs Group, said the firm sees 2 main scenarios for the next 6 to 9 months:  “fairly bad” or “very bad.”  “A fairly bad one in which the economy grows at a 1.5%-2% rate through the middle of next year and the unemployment rate rises moderately to 10%, and a very bad one in which the economy returns to an outright recession.”   Of the two, the “fairly bad” outlook - with slow growth, rising unemployment, and no recession - is the more likely one. 

    Federal Reserve Moves.  Goldman expects the Fed to spur growth as soon as its next meeting on 11/2 and 11/3;  expectations for central bank action have already led to lower interest rates, higher stock prices and a weaker dollar, according to Goldman.  Fed Chairman Ben Bernanke and his policy makers are debating whether to increase Treasury purchases to spur the U.S. economy by keeping borrowing costs low.  U.S. Treasury 5-year yields dropped to a record 1.1755% today amid signs the recovery is losing momentum.

The Fed bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March - which helped push mortgage rates to historic lows.  Another $1 trillion of asset purchases by the Fed would probably lower long-term interest rates by about 0.25%, adding a “few tenths of additional GDP growth,” Mr. Hatzius said yesterday.   [Bloomberg, 10/6]