Goldman CEO Says Deflation to Blame for Low Oil Not just Oversupply

Goldman Sachs chief Lloyd Blankfein, told CNBC on Wednesday that the drop in oil prices may indicate deflationary pressures, not just an abundance of supply.

“The market is suggesting a protracted deflationary period,” he said. “I don’t think it, but that’s the sensible way of interpreting what’s going on.”

Falling oil prices have been a drag on stocks.

Brent crude dipped below $50 a barrel early Wednesday for the first time since May 2009. U.S. oil prices fell below $47 after a 4 percent decline in New York trading Tuesday.

The S&P 500 fell for a fifth-straight session Tuesday. That marked the third-consecutive down day in 2015—the worst ever start to a year, a 2.7 percent decline for 2015.
Blankfein said he won’t extrapolate too much from the tough start for stocks.

The macro picture still looks favorable, he added—citing above-trend economic growth for the U.S. and the continued expectation for very low interest rates. “That’s a very good environment for asset prices and for stocks.”

He said he if were the Fed he’d “take a lot of risk on the inflation side … and take that risk to avoid a low but very adverse consequence of [economic] backsliding.”
“The only game in town has been monetary,” he continued. “But I would keep firing because sustaining it is a lot more sure than losing it and trying to recapture the momentum.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza