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Goldman boss warns of 'very high' recession risk in US

·2-min read
goldman
goldman

The US is facing a “very, very high risk” of recession as the Federal Reserve pushes up interest rates to tame inflation, former Goldman Sachs chief Lloyd Blankfein has warned.

Mr Blankfein, who is now senior chairman at the banking giant, urged businesses and households to brace for a downturn in the world’s largest economy as living costs soar and the US central bank tightens its position.

In an interview with CBS on Sunday, Mr Blankfein said there is a “narrow path” for the US to avoid a recession but added that the Fed is “responding well” to the highest inflation for four decades.

Fears of a recession in the US are mounting amid surging prices and a slump in consumer confidence to levels last seen following the financial crisis. Forecasters have warned the cost of living crisis has also significantly increased the risk of recessions in the UK and eurozone as energy bills soar.

“If I were running a big company, I would be very prepared for it,” said Mr Blankfein, the bank’s former chief executive. “If I was a consumer, I’d be prepared for it. But it’s not baked in the cake.”

He said some of the inflationary pressures “will go away” but warned that other price drivers will be a “little bit stickier”.

On the prospect of a recession in the US, Mr Blankfein added: “it's certainly a very, very high risk factor.

“There's a path. It's a narrow path. But I think the Fed has very powerful tools. It's hard to finally tune them and it's hard to see the effects of them quickly enough to alter it.”

The Fed has signalled to markets it will take aggressive action to tame prices after US inflation exceeded 8pc to hit a 40-year high.

A poll by Bloomberg found that forecasters have put a 30pc probability of a recession in the next 12 months.

Markets are also ramping up their bets on a US recession. The Treasury yield curve inverted in March, a market signal that has predicted every recession in the last 50 years. An inversion occurs when the yield on short-term US government debt rises above the yield on longer dated bonds, suggesting investors expect the central bank to cut interest rates in response to a downturn.

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