Goldman senior chairman Lloyd Blankfein warns of 'very, very high risk' of US recession

US consumer prices rose 8.3 per cent in April from a year ago. PHOTO: AFP

NEW YORK (BLOOMBERG) - Goldman Sachs senior chairman Lloyd Blankfein has urged companies and consumers to gird for a US recession, saying that it is a "very, very high risk".

"If I were running a big company, I would be very prepared for it," Mr Blankfein said on CBS on Sunday (May 15). "If I were a consumer, I would be prepared for it."

A recession is "not baked in the cake" and there is a "narrow path" to avoid it, he said. The Federal Reserve has "very powerful tools" to tamp down inflation and has been "responding well", the former Goldman chief executive officer added.

With high fuel prices and a shortage of baby formula tangible measures of Americans' unease, US consumer sentiment had declined in early May to the lowest level since 2011. Consumer prices in the United States rose 8.3 per cent in April from a year ago, slowing slightly from March but still among the fastest rate in decades.

Mr Blankfein's comments were broadcast the same day the investment firm's economists cut their US growth forecasts for this year and next to reflect the recent shake-out in financial markets.

Goldman's economic team, led by chief economist Jan Hatzius, now expects US gross domestic product to expand 2.4 per cent this year, down from 2.6 per cent. It reduced its 2023 estimate to 1.6 per cent from 2.2 per cent.

The report called this a "necessary growth slowdown" to help temper wage growth and reduce inflation back down towards the Federal Reserve's 2 per cent target. While the slowdown will push up unemployment, Goldman is optimistic that a sharp rise in joblessness can be avoided.

Mr Blankfein noted that while some of the inflation will go away as supply chains unsnarl and Covid-19 lockdowns in China ease, "some of these things are a little bit stickier, like energy prices".

Americans benefited for a long time from globalisation, which made goods and services cheaper based on cheaper labour abroad, he said.

"How comfortable are we now to rely on those supply chains that are not within the borders of the United States and we can't control?" Mr Blankfein said. "Do we feel good about getting all our semiconductors from Taiwan, which is again, an object of China?"

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