Goldman vs. Morgan Stanley on Deflation

Will deflation further complicate the economic fate of the U.S.? Morgan Stanley economist Richard Berner doesn't think so, but Goldman Sachs economist Jan Hatzius believes there's a decent chance it could. The New York Times notes the sharply different opinions of these economists representing the two investment banking titans:

Showing not even a hint of doubt, Mr. Hatzius said, "The prospect of substantial inflation seems very remote, but the prospect for deflation is far from remote. A double dip is certainly possible but not likely."

Mr. Berner does not expect substantial inflation, but he is predicting inflation will run 1 to 2 percent annually rather than the near-zero level Mr. Hatzius sees by the end of next year.

"There is still a one in 10 chance of deflation," Mr. Berner calculates. "But we already have been much more aggressive and proactive in dealing with the problem than Japan was," he said, referring to the Federal Reserve's decision to quickly cut rates and aggressively buy government securities.

This isn't the first time the two banks have disagreed on the direction of prices, as we noted a little over a year ago. Goldman appears to have been correct about inflation back then (so far anyway). Who's right this time?

Read the full story at the New York Times.