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Goldman’s Lloyd Blankfein warns of “very, very high risk” of recession

Former Goldman Sachs chief executive Lloyd Blankfein warned US and US consumers to be prepared for a recession as the Federal Reserve tightens policies to combat high inflation.

In a speech to CBS News on Sunday, Blankfein, who resigned as Goldman CEO in October 2018 and is still Wall Street Bank’s senior chairman, said there was a “very, very high risk” that the US economy was on track against a recession.

“If I ran a big company, I would be very prepared for it. If I were a consumer, I would be prepared for it. But it is not baked in the cake, Blankfein said.

Blankfein said huge amounts of government stimulus introduced to reduce the economic impact of the Covid-1[ads1]9 pandemic, as well as supply chain problems, shutdowns in China and the war in Ukraine, had contributed to the high inflation that the Fed is now fighting.

“The Fed has very powerful tools. It is difficult to fine-tune them, and it is difficult to see the effects of them quickly enough to change that. But I think they are responding well,” Blankfein added.

Federal Reserve Chairman Jay Powell warned this week that bringing inflation down to the US Federal Reserve’s target of 2 percent would cause “some pain”. Earlier this month, the Fed raised its benchmark policy rate by half a percentage point for the first time since 2000, saying further increases of the same magnitude should be on the table at the next two meetings.

David Solomon, Blankfein’s successor as CEO of Goldman, was less sure about the prospect of a recession when asked about the impact of Fed rate hikes on the bank at Goldman’s annual shareholders’ meeting last month.

“Our economists believe the chance of a recession here in the United States over the next few years is about 30 percent,” Solomon said. “But again, there’s a big unknown, and there’s a big difference in outcome, so we’ll all be following it closely.”

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