Goldman's Cohen sees inflation at bay

NEW YORK (Reuters) - One of Wall Street's most influential strategists said on Monday the U.S. Federal Reserve is unlikely to ratchet back efforts to stimulate the economy soon, and that it was too early to worry about inflation choking off what would likely be a fitful recovery.

Abby Joseph Cohen, senior investment strategist at Goldman Sachs Group Inc , said the U.S. central bank "would like to do as little as possible for as long as possible" to let the economy regain its footing, and allow businesses to rebuild inventories and invest more.

Inflation fears are "spectacularly premature" in light of rising unemployment and excess supply, Cohen said at the Reuters Investment Outlook Summit in New York.

"We just don't see that inflation is going to rear its ugly head any time soon. That doesn't mean we won't see some rebound in some prices," including in commodities, she said.

Cohen predicted a "dramatic surge" in U.S. corporate profits in the third quarter and especially the fourth quarter from depressed year-earlier levels.

She expects a slow economic recovery, with annualized growth in gross domestic product of just 1 percent from July to December, in part because consumers are saving more and providing less of a "spunk" to activity.

Cohen is well known for correctly forecasting a bullish run for U.S. stocks during the 1990s.

PRAISE FOR OBAMA

Having pushed benchmark interest rates to near zero, the Fed and the Treasury Department have tried to stimulate economic activity in other ways.

The central bank, for example, is aggressively buying mortgage securities and other debt to add liquidity. Meanwhile, the Treasury has pumped hundreds of billions of dollars to prop up banks and insurers.

"I don't see anything happening in the short run" to reduce the stimulus, Cohen said. "These were intended to be transitional. (Until policymakers) see that markets are moving normally, and the economy is behaving normally, they're going to be reluctant to reverse what they have done."

Cohen added, though: "We have to be very careful in terms of defining what 'normal' is."

The strategist praised early efforts by the Obama administration to stimulate the economy, including a focus on energy efficiency, and trying to bolster the U.S. middle class, which has "fallen behind over the last decade.

"They have been faced by a series of extraordinary problems, and in general I think they have gone about it in a very good way," she said.

Cohen also praised Ben Bernanke, whose term as Fed chairman ends next January.

"History is likely to show that he was an extraordinarily effective Fed chairman," she said. "Financial markets have stabilized, and the economy appears to be moving toward a stable position."

(Reporting by Jonathan Stempel and Herbert Lash; editing by Jeffrey Benkoe)