Fed Chair Janet Yellen is scheduled to appear before Congress on Wednesday, but ahead of that the Street was talking about what she will say.
“She needs to walk a fairly fine line between not appearing like she’s completely ignoring the turmoil in the markets, but at the same time also indicate that she still expects expansion,” said Goldman Sachs’ chief economist, Jan Hatzius, speaking about Yellen in an interview with CNBC.
He added that she needs to reassure the market that the Federal Open Market Committee still holds its December view.
Hatzius, a member of the economic advisory panel of the Federal Reserve Bank of New York, recently cut down his forecast of one hike a quarter in 2016, to only three increases this year.
“We took out March basically because of the tightening in financial conditions. It seems unlikely that with all that volatility they would want to go in March,” he told “Closing Bell.”
“I think that they’ll want to take some time to assess whether this is really telling you something different about the real economy.”
Interest rates are not the only thing that concerns investors currently. Recent market volatility and weak economic data have ignited conversation about the odds of a recession, with economists pointing to 2008.
Hatzius, however, thinks that the possibility of a recession is unlikely in the U.S.
“The risk of recession is — I do think it’s higher than it was a year ago, but I think it is still relatively low,” he said.
Goldman thinks that an overheating economy and an increase of leverage are main indicators of a recession, but it does not see any of these signs in the current climate.
“Clearly some of the market indicators have deteriorated,” Hatzius said. “Overall I still say that the overwhelming probability is that we will avoid a recession in 2016.”