Goldman Sachs’ CEO Lloyd Blankfein says we’re in a period where the consensus is that things are going to go very well for the economy in the near term.
Presently, interest rates, while rising, are low relative to economic growth we’re experiencing. Meanwhile, energy prices are fairly low, and more fiscal stimulus has been added to the economy, Blankfein noted.
That said, there’s still a risk to acknowledge.
“The risk is — and there’s always a risk side — is that things go a little too well, get a little hot,” he said. “The Fed, fulfilling its obligations, tries to forestall runaway inflation by raising interest rates faster than anybody thinks. And if they do that… that will be a little bit jarring for people. It may cause people to seize up.”
The Federal Reserve mandates include promoting price stability and full employment. But in its efforts, it certainly doesn’t want to accidentally upset the markets and send the economy spiraling.
“The delicate balance that the Federal Reserve has to do is kind of get interest rates up while they are simultaneously saying, ‘Well, not too fast. Don’t worry. Slow,'” he said. “And if the market gets a little upset, they say, ‘Well, we can wait a little longer.’ In other words, it’s a delicate thing to ease out of this period where they really, really kind of have easy money policy, and that’s what we’ve had and still have, but you can’t do that forever.”
The Fed has to find a way to normalize and doing so “where the cure doesn’t kill the patient.”
“That’s the exercise taking place now. My base case is that it works.”
Speaking at the Goldman Sachs’ (GS) 10,000 Small Businesses Summit in Washington, D.C., Blankfein weighed in on some of the risks to businesses.
10,000 Small Businesses is a program that aims to help entrepreneurs grow their businesses and create jobs by providing access to education, capital, and technical assistance. More than 2,200 small business owners attended the summit.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.