Goldman's Cohen: mild recession at worst

Abby Joseph Cohen, president of the Global Markets Institute and senior investment strategist for Goldman Sachs, speaks at the Reuters Investment Outlook Summit in New York June 10, 2008.

NEW YORK (Reuters) - The U.S. economy faces a mild recession at worst, given the Federal Reserve's aggressive rate cuts and various liquidity programs, Goldman Sachs' senior investment strategist Abby Joseph Cohen said on Tuesday.

Cohen told the Reuters Investment Outlook Summit in New York that these moves should help the benchmark Standard & Poor's 500 index end the year with a fair value at 1,500.

She said she has been "extraordinarily impressed" with Fed Chairman Ben Bernanke and the U.S. central bank's performance.

"We think that the second half of this year is really the point at which we should start to see some benefit, if there is going to be a benefit," Cohen said. "We think that there will be, but I think that some were simply not patient enough."

Cohen, known in the business world as one of Wall Street's most respected and influential stock analysts, began her career as an economist at the Federal Reserve Board in Washington.

"I think it's fair to say it will not be as deep a recession, if it is a recession, as many people had feared not that long ago. There certainly is not a black hole developing in the U.S. economy," Cohen said. "Also, it is entirely possible we will not have a single quarter of negative GDP."

While there is little inflation pressure from wages, she said, commodity prices are a "complicating factor." She said the United States is importing commodity price inflation from overseas.

"This is a Fed that now has to worry about the global economy. Are we importing inflation from elsewhere? Well, yes we are," she said. "As a result what we import will become more expensive. ... Can the Fed address this directly? No, it can't."

But, Cohen said, U.S. equity markets are not pricing in some of the better news. She said her 1,500 forecast for the S&P 500 assumes interest rate increases and includes low earnings expectations.

On Tuesday, the S&P 500 was trading at 1,356.

Cohen, whose forecasts for the end of 2007 were too optimistic, said she had underestimated the severity of the credit crisis, and said that, like the Fed, she is watching further developments carefully.

She said U.S. exporters are doing quite well and that is helping boost multinational technology companies in the United States.

"If you take a look at things like technology, which have been among the better performers, this is something that we had expected and we expect will continue," she said. She added that while U.S. companies have cut some kinds of expenditures, they are still spending for the future.

Cohen also believes energy securities should continue to do well as the long-term bias for oil prices is higher.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Kristina Cooke; Editing by Jonathan Oatis)