A former Goldman Sachs chief executive warns that soaring oil prices could trigger rising inflation and low economic growth.
In a new PBS interview, Lloyd Blankfein warns that he sees a “very, very bad situation” emerging once oil hits $130 a barrel.
According to the former Goldman executive, rising oil prices could make goods and services much more expensive while stifling economic growth.
“Well, it raises very difficult questions for people because something like that is just all bad all around. Because higher oil prices, when it seeps into the supply chain, are inflationary on the one hand, and kind of recessionary on the other hand, as the cost burdens rise for people. And so the most dreaded term, if you’re a central banker, is probably stagflation, which means the two aspects that you’re supposed to accomplish, and usually they’re in opposition to each other, are on the same wrong side. Higher inflation and lower growth together are a kind of a very, very bad situation.
What do you do? Do you try to remedy the inflation part by raising rates? Or do you try to remedy the low GDP side by lowering rates in response to the crisis? And so that’s a very poor situation to be in, and one tries to avoid that.”
At time of publishing, oil is trading at $98 a barrel.
Last week, Chicago Fed President Austan Goolsbee said stagflation is the worst-case scenario for any central bank. According to Goolsbee, central banks are not equipped to deal with rising inflation, alongside a recession and a weak labor market.
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