The economy may already be in recession, and the Federal Reserve will respond by slashing interest rates, economists at Goldman Sachs Group forecast Wednesday.

The economists joined their counterparts at Morgan Stanley and Merrill Lynch.

"Recession has now arrived, or will very shortly," Goldman's chief U.S. economist, Jan Hatzius, wrote in a note to clients. The downturn will last two or three quarters and be "relatively mild by historical standards," he wrote.

The recession predictions by the big investment houses run counter to a Jan. 3-8 Bloomberg News survey of 62 economists. Those economists on average predicted 1.5 percent economic growth in this year's first half, matching the fourth quarter's pace. Such a rate of expansion would be the weakest since the last nine months of 2001.

But Goldman Sachs' forecast said the jump in the jobless rate in December tipped the balance in favor of an economic contraction by signaling that the longest consumer-spending expansion on record would end this year. The Fed will cushion the downturn by lowering its target rate by half a percentage point more then previously forecast, Hatzius said.

After stalling this quarter, the world's largest economy will shrink at a 1 percent pace in the following six months as the housing slump and lending restrictions make it difficult for consumers to obtain credit, according to the forecast. The expansion will resume in the last three months of the year.

For all of 2008, Goldman economists forecast growth of 0.8 percent, matching the increase during the last recession in 2001. Consumer spending, which accounts for more than two-thirds of the economy, will be little-changed in the first three months of the year and then contract the next two quarters, according to the new forecast.

Also Wednesday, United Parcel Service chief executive Scott Davis, who runs the largest package-shipping company, said the risk of a recession had increased as rising oil prices threatened to weaken the U.S. economy.

There is more risk of a recession than there was six months ago amid a lethargic economy, Davis said at an event by the Metro Atlanta Chamber of Commerce.

"I never would have dreamed we'd push $100 oil today, based on the fundamentals," said Davis, a regional director at the Federal Reserve Bank of Atlanta, where UPS is based.

"If fuel prices get too high, the economy's going to slow, and that's going to impact all of us. That's the challenge we have."