Goldman Economist’s Outlook at Indexing Conference

The IMN “Global Indexing and ETFs Conference” is running from Dec. 2- 5 and has 600 attendees, making it one of the world’s largest and most important indexing conferences.

http://www.imn.org/Conference/Global-Indexing-ETFs/Home.html

At the conference CBOE has a booth and speaking slots on panels in order to provide information on risk management strategies. Conference attendees have expressed interest in low volatility strategies, and CBOE is highlighting its new CBOE Low Volatility Index (LOVOL). www.cboe.com/LOVOL

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Mr. Jan Hatzius, Chief Economist of Goldman Sachs, spoke this morning at the conference; here are some highlights from his remarks —

Our View of US Outlook – “Private Boost, Public Drag”

Fiscal Policy —

Fiscal Tightening in 2013 –

Fiscal impact could be 1.4% of GDP in 2013 Fiscal Policy Will Weigh

Heavily on Growth in early 2013, Capital Expenditures weaken ahead of fiscal cliff; there is some postponement over last few months Hurricane

Sandy had about $75 billion in damage, it was the 2nd most damaging US hurricane since WWII. There could be 50 to 75 basis points of added GDP growth in early 2013 due to bounceback from Hurricane Sandy.

Vacancy rates for housing have been unusually high in recent years(around 3%) but are declining towards a more normal 1.5%.

Inflation outlook — Global energy supply side has improved. Good development of US shale.

Inflation outlook – There still is lots of slack in US labor market.

Inflation outlook — wages (and prices) are rigid to the downside. Our inflation outlook is around 1.5%.

Fed policy will continue to stay easy

We expect Fed might change its procedures so that it might announce specific unemployment rate and inflation rate levels that will be prerequisites for their interest rate changes.

An audience member asked – if US were to raise taxes and cut spending as did Europe recently, would there be a negative impact on US as there was in Europe? Mr. Hatzius noted that while higher taxes and lower govt. spending can be a drag at times when economy is depressed, it appears that the US is in a stronger position than Europe in recent years.