The US could be on the verge of recession, warns former Goldman Sachs CEO: Should the world be worried?

Goldman Sachs Senior Chairman Lloyd Blankfein, in a recent interview, said that the US is at a “very, very high risk” of a recession. Many factors have led up to this but no one knows when the recession will arrive or how severe it could be. Will a recession in the world’s largest economy affect all regions equally?

Goldman Sachs Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.” “If I were running a big company, I would be very prepared for it,” Blankfein said on CBS’s “Face the Nation” on Sunday. “If I was a consumer, I’d be prepared for it.”

A recession is “not baked in the cake” and there’s 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 said.

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

With high fuel prices and a shortage of baby formula tangible measures of Americans’ unease, US consumer sentiment declined in early May to the lowest level since 2011.

US consumer prices rose 8.3% in April from a year ago, slowing slightly from March but still among the fastest rate in decades.

Things could change very quickly if the U.S. economy slides into a recession.

The U.S. dollar is currently “highly overvalued,” analysts from Goldman Sachs recently wrote in a note, and they said it’s unclear if the currency’s strength will hold in case of a recession.

In April, Goldman put the odds of a recession coming to roost in the U.S. at 38%. More recently, the bank said the risk of a recession is “rising,” as inflation continues to sit at a four-decade high and the Fed attempts to engineer its way towards a “soft landing” for the economy—wherein inflation is reined in without causing a significant drop in economic activity or a jump in unemployment.

“The dollar’s performance in and around recessions is less clear-cut than for other assets,” Goldman analysts, led by economist Zach Pandl, wrote, adding that other currencies, such as the Japanese yen, could be poised to take advantage of a dollar slump should a recession strike.

In another note published last week, Goldman analysts wrote that the yen is undervalued against the dollar by as much as 25%. With it trading so cheaply compared to more traditional “safe haven currencies” such as the U.S. dollar, it said the yen could become a useful hedge against a U.S. recession.

Blankfein remarks come after the firm’s economists cut the US growth forecasts for 2022 and 2023 to reflect the recent shake-out in financial markets, reports Bloomberg.

Goldman’s economic team expects US gross domestic product to expand 2.4 per cent this year, down from 2.6 per cent. It has also reduced its 2023 projections from 2.2 per cent to 1.6 per cent.

The report called this a “necessary growth slowdown” to help temper wage growth and reduce inflation back down towards the Fed’s 2 per cent target.

The United States is facing its worst inflation in 40 years. In March this year, inflation hit 8.5 percent, well above the central bank’s target of 2 percent, due to surging food and energy costs. While inflation has come down to 8.3 percent, more rate hikes are expected in the next few months. 

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x