Jan Hatzius Vs. Warren Buffett: Direction of Interest Rates

Goldman Sachs’ chief US economist Jan Hatzius predicted yesterday that interest rates will stay at zero for another two years. On top of that he said inflation will stay extremely low at 0.5% in 2011 and 2012. Jan Hatzius also expects the US GDP to grow 3.4% in 2011 and 3.8% in 2012. Hatzius isn’t very optimistic about the labor markets though. He expects unemployment rate to be 8.75% at the end of 2012. That’s a very precise prediction, considering the Labor Department usually uses single digits like 8.8% or 8.7%.

Goldman Sachs is indeed very bullish about the economy, yet doesn’t expect interest rates to budge at all. Warren Buffett, on the other hand, publicly expressed his views about the direction of interest rates about a month ago. “I think short-term and long-term bonds are a very poor investment at the present time,Warren Buffett said in November. Today Berkshire Hathaway acted on that prediction and sold $1.5 billion of mostly fixed-rate debt to retire floating rate notes.

Insider Monkey, your source for free insider trading data, sides with Warren Buffett on the direction of interest rates. If the US economy grows at a rate close to 4% two years in a row (as predicted by Goldman Sachs), inflation rates won’t stay put below 1%. The Fed won’t be able to keep subsidizing borrowers at the expense of savers for much longer if all the doubts about the direction of the economy are removed. We think it’s more likely that interest rates will move up as predicted by Warren Buffett.

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