Goldman Sachs Chairman Says US Runs Very High Risk of Slipping Into Recession

The US economy is running a high risk of slipping into recession, former Goldman Sachs CEO Lloyd Blankfein has warned.

Blankfein's grim comment came even as the US Federal Reserve continues to raise interest rates to control rising inflation. Blankfein was speaking on "Face the Nation" on CBS. Recession is a "a very, very high risk factor," he said, according to Bloomberg.

Narrow Path

"There's a path. It's a narrow path ... But I think the Fed has very powerful tools. It's hard to finely tune them, and it's hard to see the effects of them quickly enough to alter it, but I think they're responding well. It's definitely a risk," he added.

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A customer counts his U.S. dollar money in a bank in Cairo, Egypt March 10, 2016

A few weeks ago, the investment bank had warned that there was a 35 percent chance of the US economy falling into recession.

With the US Federal Reserve rolling out multiple interest rate hikes this year, the economy could slip into recession, analysts at the bank had warned. The odds of the US economy contracting is at about 35 percent over the next two years, Goldman chief economist Jan Hatzius.

"Our analysis of historical G10 episodes suggests that although strong economic momentum limits the risk in the near-term, the policy tightening we expect raises the odds of recession. As a result, we now see the odds of a recession as roughly 15% in the next 12 months and 35% within the next 24 months," Hatzius said in a new note to clients.

Economic crisis during Coronavirus pandemic Pixabay

Blankfein's comment followed Federal Reserve Chairman Jerome Powell's remark last week that the rise in interest rates will cause 'some pain.'

More Rate Hikes

The Fed raised interest rates in March as the economy was emerging from the loose monetary policy triggered by the coronavirus pandemic. The quarter-percentage-point rate increase in March will be followed up with more hikes as the Fed is doing a tightrope walk trying to rein in inflation without causing widespread pain in the economy.

According to seasoned analysts, Fed will find it near impossible to tighten the monetary policy without causing a recession if they were to effectively control inflation.