Former Goldman Sachs CEO Blankfein says the US banking crisis will slow growth

WASHINGTON (Reuters) – Former Goldman Sachs (GS.N) CEO Lloyd Blankfein said Sunday the banking crisis in the United States will accelerate the broader credit crunch and slow the US economy.

“There is a certainty that this will – which this situation will create – will act in some ways similar to a rate hike. Banks will be sparing with their equity,” Blankfein said in an interview with CNN on Sunday.

“They will lend less on the deposits they have. And so there will already be less credit. Less credit means less growth. So part of the Fed’s mission of trying to slow down the economy is being done here,” the former Goldman Sachs CEO added.

Financial stocks lost billions of dollars in value since Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) collapsed in early March. US President Joe Biden said on Friday that the banking crisis had calmed down. He also told Americans their deposits were safe.

Gary Cohn, who served as economic adviser to former President Donald Trump and is also a former president of Goldman Sachs, told CBS News that Federal Reserve Chairman Jerome Powell is in a “difficult position.”

Both Cohn and Blankfein supported the prediction that the Fed will hike rates by 0.25% in the coming week, but added that the central bank may need to pause and reassess afterwards to give itself room for the to create a future.

“The market is forecasting a greater than 70% chance that the Fed will hike 25 basis points. I personally — I personally think it would be okay to stop here,” Blankfein told CNN.

Her former bank’s economic team was among the first to predict that the banking turmoil would cause the Fed to hold back on a rate hike at this week’s meeting on Tuesday and Wednesday.

Nonetheless, futures markets on Friday saw a more than even chance that the Fed would proceed with a 25 basis point hike, a view echoed by a Reuters poll of economists on Friday.

Investors are currently rating a 60% chance that the Fed will hike rates by 25 basis points on Wednesday, while the rest are betting on no change. Some industry executives said the central bank should now prioritize financial stability.

“I think[Fed Chair Powell]will give themselves plenty of wiggle room in meetings ahead of time to do whatever they need to do, which can be a pause, maybe a cut, maybe a hike, depending on how things are going inflation in the United States is developing,” Cohn said on Sunday.

Reporting by Kanishka Singh in Washington; additional reporting by Michelle Nichols in New York; Editing by Dan Burns

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