(Bloomberg) — Former Goldman Sachs CEO Lloyd Blankfein said the Federal Reserve could hold off on raising interest rates this week because the unfolding bank crisis would effectively tighten lending standards in the economy.
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The increased scrutiny after the collapses of Silicon Valley Bank and Signature Bank will lead to banks offering less credit on deposits, Blankfein said in an interview on CNN’s “Farid Zakaria GPS” broadcast on Sunday. He added that while the market is projecting more than a 70% chance the Fed will hike rates by 25 basis points when it meets this week.
“I personally think it’s a good idea to stay here,” said Blankfein, senior chairman of Goldman Sachs. “This situation would act in a way that is in some ways similar to a rate hike.”
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According to Blankfein, such tightening in lending would translate to lower growth and meet the Fed’s goals of slowing the economy to keep a lid on price inflation. Credit markets have been faltering since the crisis began, costs have jumped and corporate borrowers have held back on issuing new loans.
Prior to the collapse of SVB and the resulting fall, Fed policymakers were prepared to raise rates by as much as 50 basis points as price pressures in the US economy proved sticky. Given the current market volatility, some Fed watchers are expecting a quarter-point hike, while others predict a pause as the central bank examines whether to hit the brakes too hard on the economy. has been slammed.
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Blankfein also warned that without intervention to protect deposits at smaller and regional banks, consumers may rely only on the largest banks, which have higher capital and liquidity standards. He added that this could lead to consolidation in the financial sector, which would be a negative development for the country’s large and growing economy.
“Our credit system is across communities and industries and different sectors,” he said. “It’s probably a good thing. I don’t necessarily want to experiment and get it back.
He also suggested that the current crisis in the sector is different from the global financial crisis that began in 2008, when he was heading Goldman Sachs.
“In 2008, there were asset problems,” Blankfein said. “In the current market, it’s really people taking out their deposits, but the asset, maybe in the long run, is good money.”
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