You might call it entering the lion’s den – even if Lloyd Blankfein probably didn’t realize it at the time. The chief executive of Goldman Sachs on Wednesday took on the German banking establishment, telling a Handelsblatt-sponsored conference why he believes low interest rates aren’t really such a bad idea.
Mr. Blankfein isn’t necessarily one to pull punches when he feels it’s warranted. The US investment banker has been among Donald Trump’s more ardent critics, for example, and on Tuesday acknowledged the new US administration has proven “more chaotic” than expected, even if he’s still hopeful that some of Mr. Trump’s priorities, like financial deregulation, will work out well for his industry.
But when it comes to central banks, Mr. Blankfein played defense. While German bankers have long warned that historically low rates are undermining their business model, Mr. Blankfein urged the skeptics to be patient, and praised the work of Janet Yellen of the Federal Reserve in the US and Mario Draghi of the European Central Bank in Europe.
“My bias is, yes, we have to get back to normal. But the consequences of raising rates too quickly too early are more dramatic than the consequences of waiting,” he said in an interview held in New York.
That marked a sharp departure from the message earlier in the day. At a simultaneous event in Frankfurt, policymakers ranging from Deutsche Bank CEO John Cryan to Finance Minister Wolfgang Schäuble nudged the European Central Bank to think about raising interest rates off their floor and ending a trillion-euro bond buying program. While the Fed in the US has already started raising rates, most economists expect the ECB will keep its looser policies in place at least until mid-2018.
Mr. Blankfein, on the other hand, expressed the opposite worry to Germany’s bankers, who among other things fear that loose monetary policy is pushing up asset prices and raising the risk of price bubbles in the economy. “There really is a playbook for dealing with inflation,” he said, but less of one for dealing with falling prices. In other words, central banks would be able to raise interest rates quickly if they see signs of prices increasing dramatically, something that he believes hasn’t happened yet. Until that day comes, best to be cautious.
Mr. Blankfein offered some other soft criticism for his European peers. He prodded economies like France to loosen labor regulations, arguing that may have helped the country recover faster from the 2008 financial crisis. And he nudged Germany’s rather fragile banking system to reform. “Strong economies generally have strong financial systems and strong banks…that’s something else that still has to be accomplished,” he said of Germany.
By contrast, the Goldman Sachs CEO had high praise for German Chancellor Angela Merkel, who is in the midst of an election campaign for a fourth term, calling her the “most important statesperson, certainly in Europe and probably … given her long tenure, the world.”
Leaving aside whether that kind of praise from a US investment banker really helps Ms. Merkel back in conservative Germany, Mr. Blankfein may have also given her critics some additional ammunition by suggesting she had tolerated the ECB’s policies over the course of the euro zone’s debt crisis. “Over here, [the central bank’s policy] was very radical, but I can only imagine how that must have been in Europe. And yet, with her running Germany, the ECB was able to do that,” he said.
He meant this, too, as praise. And indeed that is how it is seen in much of Europe. But given that many in Germany feel the ECB’s actions to save the euro zone went too far, including Ms. Merkel’s own finance minister, Mr. Blankfein may have been better keeping that thought to himself.
As part of Handelsblatt’s annual banking summit, our Editor-in-Chief Andreas Kluth and Daniel Schäfer, our Financial Editor, interviewed Lloyd Blankfein, CEO of Goldman Sachs, from Frankfurt and New York. Christopher Cermak wrote this story for Handelsblatt Global.