‘US facing very high risk of recession’

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Goldman Sachs Senior Chairman Lloyd Blankfein noted that while some of the inflation “will go away” as supply chains unsnarl and Covid-19 lockdowns in China ease, “some of these things are a little bit stickier, like energy prices.”…reports Asian Lite News

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.

Blankfein’s comments were broadcast the same day as the firm’s economists cut their U.S. growth forecasts for this year and next to reflect the recent shake-out in financial markets.

Goldman’s economic team, led by Jan Hatzius, now expects U.S. gross domestic product to expand 2.4% this year, down from 2.6%. It reduced its 2023 estimate to 1.6% from 2.2%.

The report called this a “necessary growth slowdown” to help temper wage growth and reduce inflation back down toward the Fed’s 2% target. While the slowdown will push up unemployment, Goldman was optimistic a sharp rise in joblessness can be avoided.

Blankfein noted that while some of the inflation “will go away” as supply chains unsnarl and Covid-19 lockdowns in China ease, “some of these things are a little bit stickier, like energy prices.”

Americans benefited for a long time from globalization, which made goods and services and cheaper based on cheaper labour abroad, he said.

“How comfortable are we now to rely on those supply chains that are not within the borders of the United States and we can’t control?” Blankfein said. “Do we feel good about getting all our semiconductors from Taiwan, which is again, an object of China.”

Inflation at 40-year high

Last week, inflation rate hit a 40-year high in the year to March after fuel prices soared during the first full month of the Ukraine war.

Consumer prices surged by 8.5 per cent — the largest annual gain since December 1981 — following a double-digit rise in energy prices.

Last month, President Joe Biden had banned all imports of oil and gas from Russia following the latter’s invasion of Ukraine. At the same time, US fuel prices reached new record highs.

Energy prices rose by 32 per cent in the year to March, according to the country’s Labor Department. It also said that food prices surged over the same period, up by 8.8 per cent. Like energy, food price inflation has been exacerbated by Russia’s invasion of Ukraine. Both countries are big exporters of widely-used goods such as wheat and sunflower oil.

“The Russia-Ukraine war has added further fuel to the blazing rate of inflation via higher energy, food, and commodity prices that are turbo charged by a worsening in supply chain problems,” said Kathy Bostjancic, chief US economist at Oxford Economics, BBC reported.

The US central bank also signalled that the interest will rise a number of times this year.

Inflation rates were already rising before Russia’s invasion of Ukraine as many global economies reopened following the lifting of Covid restrictions. However, prices appear to be accelerating at a time when wage growth is struggling to keep up.

Recent figures show that average hourly earnings in the US rose by 5.6% in the year to March, well below the latest rise in the cost of living.

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