Goldman Sachs boss on Trump tax plan: ‘Odds of a bad outcome have gone up’
Lloyd Blankfein warns that Donald Trump’s $1.5tn tax cut plan could over-stimulate an already healthy economy
The Goldman Sachs boss, Lloyd Blankfein, has added his voice to the chorus warning that Donald Trump’s $1.5tn tax cut and spending plans could lead to an overheated US economy.
“The odds of a bad outcome have gone up,” Blankfein told CNN on Wednesday.
Trump outlined a budget this week that could add $7tn to the nation’s debt over the next decade. Blankfein warned that over-stimulating an already healthy economy could prove “too much of a good thing”.
“Don’t forget, all of these deficits have to be paid for,” he said.
Blankfein said the current upbeat mood reminded him of the optimism that preceded the global financial crisis of 2007-8.
“What could possibly go wrong? I haven’t felt this good since 2006,” he joked. “If the economy starts to overheat, and the Fed feels that it’s behind on inflation, it will need to act,” he added.
Blankfein stopped short of issuing an-all out warning.
But “with the Fed raising rates, with the withdrawal of QE, with the budget deficit widening out, I wouldn’t say this is the time I would max out on my risk.”
Over the past 10 days, Wall Street has been reacting spasmodically to Trump’s economic stimulus measures and clear signals from the Fed that it will raise interest rates to in an effort to counter signs that inflation could soon outstrip the Fed’s 2% target.
The Dow Jones industrial average is up about 5,000 points since Trump took office – a figure that takes into account more than 2,000 point drop since its late January high.
At the same time, fears of inflation are intensifying. On Wednesday, the labor department announced that consumer prices rose 0.5% in January, the most in four months. The annual rate of headline inflation of 2.1% for January was stronger than the consensus forecast of 1.9%.
