By Kanishka Singh
WASHINGTON, March 19 (Reuters) - Former Goldman Sachs CEO Lloyd Blankfein said on Sunday the banking crisis in
the United States was going to expedite overall credit
tightening and slow the U.S. economy.
"It is a certainty that this will - that this situation will
cause - will act in a way that’s similar to a rate rise in some
ways. Banks will have to, you know, because of the tension,
because of the pressure and uncertainties, banks will husband
their equity," Blankfein told CNN in an interview on Sunday.
"They'll do less lending on the deposits they have. And so
already there's going to be less credit. Less credit means less
growth. So, some of the mission of the Fed in trying to slow the
economy will be done here," the former Goldman Sachs CEO added.
Financial stocks lost billions of dollars in value since
Silicon Valley Bank and Signature Bank collapsed earlier in March. U.S. President Joe Biden said on
Friday the banking crisis has calmed down. He also told
Americans that their deposits are safe.
Gary Cohn, who served as economic adviser to former
President Donald Trump and is also a former Goldman Sachs
president, told CBS News that Federal Reserve Chair Jerome
Powell was in a "tough spot."
Both Cohn and Blankfein supported the prediction that the
Fed will raise interest rates by 0.25% in the coming week but
added that the central bank may need to pause and reassess
thereafter to give itself room going forward.
"The market is projecting better than a 70% chance that the
Fed raises 25 basis points. I personally - I personally think it
would be okay to stop here," Blankfein told CNN.
The economics team at their former bank were among the first
to predict the banking turmoil would lead the Fed to forego an
interest rate increase at this week's meeting on Tuesday and
Wednesday.
Nevertheless, futures markets as of Friday saw a better than
even probability that Fed would proceed with a 25 basis point
increase, a view echoed by a poll of economists from Reuters on
Friday.
Investors are currently pricing a 60% probability that the
Fed will raise rates by 25 basis points on Wednesday, with the
remainder betting on no change. Some industry executives said
the central bank should prioritize financial stability now.
"I think (Fed Chair Powell) will leave himself a lot of
room in forward meetings to do whatever they need to do, which
may be pause, maybe cut or maybe increase depending on how
inflation is going in the United States," Cohn said on Sunday.
(Reporting by Kanishka Singh in Washington; additional
reporting by Michelle Nichols in New York; editing by Dan Burns)
