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Former Goldman CEO believes Fed may not need higher for longer rates

Former Goldman Sachs Chairman and CEO Lloyd Blankfein believes the Federal Reserve probably won't need to keep interest rates higher for longer, in a statement on Tuesday. Yahoo Finance Live's Seana Smith and Brad Smith break down Blankfein's commentary and the outlook for the Fed's monetary policy.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Now let's get to your market commentary of the day. Former Goldman Sachs chairman and CEO Lloyd Blankfein believes that the US Central bank probably will not need to keep interest rates higher for longer. He says that inflation is successfully near the high twos, and you don't need 5.5% interest rates.

Now Brad, interesting timing because we heard from JPMorgan CEO Jamie Dimon saying that not necessarily expecting a 7% handle when it comes to rates, but saying that maybe this is something that investors should keep on their radar and exactly what that would potentially do to the markets and the impact here on the economy. But more so what I think is interesting is Blankfein coming out and saying this after we heard from Fed Chair Jay Powell last week and some of the more aggressive and hawkish commentary that we got from the dot plot, just signaling the fact that the Fed is expecting to need to stay higher for longer in order to finish that last mile battle against inflation.

BRAD SMITH: Yeah. Yeah. Channeling some Jordan Belfort energy, saying, hey, we're not going anywhere, we're not finished yet. But that's not what the markets wanted to hear last week. And you saw that in the equity market reaction. But in terms of what you're hearing from two very powerful names that have the propensity to move markets in Diamond earlier this week and now Blankfein as well. And given the former role that he had as CEO of Goldman, what he says still matters very much.

So the quote here that kind sticks out to me, "inflation is probably within the threes, let's say you successfully get it to the high twos," which has been among the commentary that we've heard from many economists. If you were able to get inflation down to the high twos, would the Fed be satisfied with the policy and the decisions that they've been able to enact? Now of course, there's going to be a lot of lag to actually seeing that take place. So that's important to note here.

But Blankfein also adding in saying that you don't need 5.5% interest rates at that point when inflation is relatively subdued. So we will see what further activity the Fed feels like it needs to enact if we are able to indeed get to the high 2's and then perhaps have a slow and steady trend down to that eventual 2% or what type of activity that the Fed might or the tenor that might kind of overwhelm the conversation even if we were to get to that high two range.

SEANA SMITH: Yeah, certainly Blankfein also went on to say that this cycle could be different. And he still thinks that there's a chance that we're going to be able to avoid a recession. We a soft landing has pretty much been the base case there for many forecasters over the last several months. But coming off some of the hawkish comments from Powell, last week there has been a bit of a reassessment just in terms of whether or not a soft landing is still possible or if a recession is almost more likely at this point. But Blankfein striking the optimistic tone saying that he still thinks a soft landing can be done, and he's confident in it. So we'll see. Only time is going to tell.