July 6, 2022

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Former Goldman Sachs CEO: “Extremely high risk” US economy will go into recession

In an interview with CBS News, Lloyd Blankfein, senior chairman of investment bank Goldman Sachs, said the US economy was “very, very risky” heading into recession. “If I run a big company, I’m very ready for it. If I were a consumer, I would be ready for it,” said the former Goldman CEO.

In early May, the news site reported that consumer confidence in the United States had fallen to its lowest level since 2011, as high fuel prices and a shortage of baby food added to the unrest in the United States. BloombergU.S. consumer prices rose 8.3 percent in April from a year earlier, a slight recession since March, but still one of the fastest gains in decades.

Blankfein attributed the rise in inflation to the massive stimulus packages of US governments introduced to mitigate the economic impact of the corona epidemic. In addition, he addressed global issues with the supply chain Locking in China And the war in Ukraine is a catalyst for a dangerous economic situation.

Ooty

The US Federal Reserve is currently trying to combat the depreciation of money by rising interest rates. For example, this month the central bank released its first issue Note The interest rate has been increased by half a per centTwo new interest rate hikes are still on the agenda. “The central bank has very powerful tools. It’s difficult to fix them well and see their effects quickly enough to change them. But I think they respond well,” Blankfein suggested.

However, Blankfein hopes that some of the factors that trigger inflation, such as corona lockdowns in China, will soon disappear. However, some co-occurring factors such as sky-high energy prices will last for a while. According to the banker, the last word was not said about the supply chains.

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“How comfortable are we now to trust supply chains that are not within US borders and beyond our control?” He added. “Would it be nice for us to get all our semiconductors out of Taiwan?” He noted that Chinese President Xi Jinping has repeatedly stated this openly The “reunification” of China and the democratic island nation of Taiwan must inevitably take placeBeijing wants a peaceful approach to this, but does not reject military power.

“The Big Unknown”

David Solomon, Blankfine’s successor as Goldman’s CEO, was less optimistic about the possibility of a recession.

When asked about the impact of the central bank’s interest rate hike on the economy at the bank’s annual shareholders’ meeting last month, he said: “Our economists believe the probability of a recession in the United States over the next few years is about 30. Percent. But (…) this is a big unknown, and there is a big difference in the consequences, so we are all going to look at it very closely.

Low growth forecast

The Blankfein interview aired on the same day that the Wall Street giant economists lowered US growth forecasts for this year and next. For example, they tried to take into account recent sales in the financial markets.

Goldman’s Economic Group, headed by John Hatcheys, now expects US gross domestic product (GDP) to grow 2.4 percent this year from the previous 2.6 percent. Reduced its forecast for 2023 from 2.2 percent to 1.6 percent.

The report called the recession “necessary” for economic growth to slow wage growth and bring inflation back to the central bank’s target of 2 percent. For example, Federal Reserve Chairman Jerome Powell last week warned that bringing inflation to this target would cause “some pain.” Financial Times⁇

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While slower-than-expected growth will boost unemployment, Goldman expressed hope that a sharp rise in unemployment could be avoided.

(N.S.)