Former Goldman Sachs CEO: It’s 'Time to Prepare for an Economic Recession’
'I would be very prepared for it'
Former Goldman Sachs CEO Lloyd Blankfein has issued a stark warning of a looming economic recession.
Blankfein said it is time to brace for a worsening economic future although a recession is not guaranteed.
“It’s definitely a risk,” Blankfein said on “Face the Nation.”
“If I were running a big company, I would be very prepared for it," he said.
"If I was a consumer, I’d be prepared for it, but it’s not baked in the cake.”
Blankfein served as CEO from 2006 through September 2018 and witnessed the 2008 economic downturn up close.
Goldman took $10 billion from the Treasury Department’s Troubled Asset Relief Program in 2008 and later repaid the funds it received with interest, according to NPR.
Blankfein told CBS on Sunday that some of the rising costs of inflation will stick around and hurt Americans on the bottom of the economic ladder.
“It’s going to be hard for people to have savings, but they already have savings,” he said.
“They’re not going to necessarily increase it quickly because of inflation but they’re starting in a much better place than we were then.”
As CNN reported last month:
Deutsche Bank raised eyebrows by becoming the first major bank to forecast a US recession, albeit a "mild" one.
Now, it's warning of a deeper downturn caused by the Federal Reserve's quest to knock down stubbornly high inflation.
"We will get a major recession," Deutsche Bank economists wrote in a report to clients on Tuesday.
While inflation may be peaking, it will take a "long time" before it gets back down to the Fed's goal of 2%.
That suggests the central bank will raise interest rates so aggressively that it hurts the economy.
"We regard it...as highly likely that the Fed will have to step on the brakes even more firmly, and a deep recession will be needed to bring inflation to heel," Deutsche Bank economists wrote in its report with the ominous title, "Why the coming recession will be worse than expected."
Consumer prices spiked by 8.5% in March, the fastest pace in 40 years.
The jobs market remains on fire, with Moody's Analytics projecting that the unemployment rate will soon fall to the lowest level since the early 1950s.
To make its case, Deutsche Bank created an index that tracks the distance between inflation and unemployment over the past 60 years and the Fed's stated goals for those metrics.
That research, according to the bank, finds that the Fed today is "much further behind the curve" than it has been since the early 1980s, a period when extremely high inflation forced the central bank to raise interest rates to record highs, crushing the economy.
History shows the Fed has "never been able to correct" even smaller overshoots of inflation and employment "without pushing the economy into a significant recession," Deutsche Bank said.
Given that the job market has "over-tightened" by as much as two percentage points of unemployment, the bank said, "Something stronger than a mild recession will be needed to do the job."
The good news is that Deutsche Bank sees the economy rebounding by mid-2024 as the Fed reverses course in its inflation fight.