From Macroeconomic Advisers:
GDP declined at a 5.7% annual rate in the first quarter following a 6.3% decline in the fourth quarter of last year. Together, these declines constitute the second sharpest two-quarter decline in GDP in the postwar period. But a bottom in GDP is forming, and we look for a modest 0.9% decline in the second quarter followed by moderate growth in the second half of this year and above-trend growth in 2010 and 2011. The sources of the rebound continue to be the aggressive monetary and fiscal policy responses under way; the success in Treasury’s efforts to recapitalize the major banks and to provide sufficient capital buffers, if necessary, so that banks are more likely to make loans; diminished drag from housing and credit conditions; and a rebound in equities that is already under way. In this forecast, the unemployment rate peaks at 9.6% at the end of this year and declines only slowly thereafter. Inflation falls significantly, and the FOMC is expected to maintain a near-zero federal funds rate for a very extended period.