Federal Reserve Chairman Ben S. Bernanke’s assertion that interest rates may need to increase to curb inflation is wrong, according to Goldman Sachs Group Inc., Merrill Lynch & Co. and UBS AG, Bloomberg has reported.
While Bernanke warned last month that the odds of worsening inflation have increased, chief economists at the three firms say the worst housing slump in a decade may drive the U.S. economy into a recession and stifle consumer prices.
Their chief economists say the Fed will cut its target for overnight loans between banks at least three times this year.
Bernanke is missing “the linkage between residential housing investment and the broader economy,” Jan Hatzius, chief economist at New York-based Goldman, the world’s most profitable securities firm, said in an interview. “The housing downturn is of the first order of importance.”
Hatzius says the Fed will cut rates three times this year, to 4.5 percent from 5.25 percent.
That should be bullish for bonds, says David Rosenberg, chief economist at New York-based Merrill, the world’s biggest brokerage firm. He expects 10-year Treasuries to produce the best returns since 2002.