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Goldman Anticipates 50% Cut To Unemployment Supplement

Courtesy of ZeroHedge View original post here.

As US initial claims surge back to 1.4m and the $600 weekly unemployment boost set to lapse on Friday, Goldman Sachs' chief economist Jan Hatzius thinks lawmakers will end up cutting the supplemental benefits in half – if they're able to reach an agreement at all. Though given the chances of lawmakers letting Americans die on the vine into a contentious election, it looks like this experiment in quasi-universal basic income is here to stay in some form or another.

Speaking via phone on Thursday, Hatzius told Bloomberg that anticipates the $600 weekly stipend will be reduced to $300 – though he notably didn't address the possibility of a temporary extension – a stopgap solution supported by Republicans which has faced opposition from key Democrats.

And as Rabobank's Michael Every noted earlier, "Until Congress can agree on something new, we are about to find out what an economy looks like when you throw tens of millions into unemployment…"

Goldman's Hatzius, meanwhile, also anticipates $200 billion in new funding for cities and states.

"If that doesn’t show up, state governments are going to be in very serious financial trouble, and you’re going to see serious cutbacks," he said.

If Congress delivers something along those lines, the economy will continue to grow, but he warned that “you’re still going to see some negative impacts, because the unemployment insurance is less generous than it was before.” There’s also a possibility that nothing gets passed, and in that case Hatzius sees a return to outright economic contraction. -Bloomberg

Whatever happens in the near term, Goldman's outlook is still sour – with unemployment remaining elevated for years despite Hatzius noting that "this is a much more rapid recovery than we've seen in the past," adding "We're still above 4% for the next four years," he said of the US jobless rate.

Because of this, Hatzius and his team aren't expecting the fed to hike rates for another five years, and assumes that Fed Chairman Jerome Powell and his colleagues will issue some type of "outcome-based guidance" in which they won't commit to hiking rates until inflation above 2% is sustained and unemployment remains below a certain threshold.


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