Lloyd Blankfein: Fed Should Start the Taper [VIDEO]

In an wide-ranging exclusive interview, CNBC’s Andrew Ross Sorkin talks with Lloyd Blankfein, Goldman Sachs chairman & CEO, about cuts in the Fed’s bond-buying program; the move higher in interest rates; the trade in gold; the best candidate to head the Fed; joining the Dow, and how regulations are impacting the banking industry.


andrew joins us from chicago with our special guest. thank you. we’re live in chicago. goldman sachs just finished up the cfo conference. thank you for being here on what we think will be a big news day. i’ll ask you, what do you think will happen at 2:00, and does it matter? it matters more or less depending on what happens. i think it matters to people. i don’t think it should matter as much as people are weighing in on. it probably will matter. what are you expecting? i expect — i think at this point there has to be some cut. i don’t think if it’s a number like down 10 billion, the market will be happy. the market will be sad because we’re losing the heroin injection or because — that could be good news right? i’ll use metaphor of head wind and tail wind. there’s a tail wind from the fed. people think this is the first moment when there’s a withdrawal from the market. it’s not as big a deal. it’s not the first withdrawal. the biggest artificial support the markets had a long time, we’ve been withdrawing that steadily. the biggest support the markets had was the unbalanced budget we had. spending more than we were taking in revenue. we have tie had the up. the payroll tax coming back. all those things are moving toward normalization as in rise in interest rates. the fact interest rates for 1 1/2% was influential to the market. this is not the first step. also the expectations are embedded. austan goolsbee on a moment ago, he seemed worried if we got to too much it would be bad news. that the economy is still too fragile. where the are we? in substance it’s a recovery where trajectory is not as steep as it should be. all these support measures are a form of insurance not because we think it will turn back but because it might turn back. it’s too high — i’d rather be cautious. the odds of it turning back are not great. are you a believer it worked? i think it was — at the margin, it made a contribution. who knows. you can’t go back and see both paths. i would say — i would have if i were in charge of running the economy, i would have done anything i could. this was in the positive direction. joe has a question back at hq. only in relation to another market. i want goldman’s comments. goeldman said gold would keep going down because of the taper. lloyd, were you part of that — are you there for decisions like that? do you agree? where do you think gold could go? i’m not part of the process of generating that point of view. i always have a point of view on gold where i start at jr commodities. my first job was on the gold market. gold is trading higher to other currencies. they trade against each other at a point people were questioning the behavior of every bank. all of a sudden, gold became the alternative currency or two currencies. by the way, with interest rates rising, gold doesn’t pay. it becomes not only less important to hold gold as an alternative but more expensive but to hold as an insurance policy. do you think it could go to a thousand? in gold, it’s always — gold is not even a fiat currency. gold is what people think it’s worth. it’s not value. it’s a direction from where you are. that’s the hardest place to figure out where it belongs. that’s down. i would think that would trend down. on the topic of all things fed related. were you a fan of larry summers. would you have wanted to see him get the job? i am a fan of larry summers. who do you want for that job? it’s a hard question. i would say at some level, at an important level, i will say i’ll have to work with whoever has that job. it’s actually quite convenient that i like everybody. you have met yellen? yes. you think she’s as strong as the markets think or stronger? both have different backgrounds and both have different temperaments. both are equivalent and very strong. each could do the job. unrelated to the particular policies, janet yellen — the big tool that the fed has available now when you put aside qe and measures is forward guidance. forward guidance is more credible if it’s from an institution with continuity. with larry that would be a break. first of all would they do it with credible and how would the market take it? forward guidance with a current vice chairperson is going to be the next chairperson has more credibility. not saying whether you like the policies or don’t, but to an extent forward guidance is more credible when there’s continuity. what’s your opinion on the economy. we have syria, debt ceiling, a lot coming this fall. a lot don’t know what to make of it. there’s a lot that can go wrong. i joked last night i spend 98% of time in 2% worse possibilities in risk management. i think in the largest probability that we muddle through thing, climbing the wall of worry and actually very well positioned for the economy to keep improving. a week ago goldman sachs became part of dow. how did that happen? were there conversations? i didn’t have a clue. if i did have a clue, i would have been obsessing and asking why it didn’t happen yet. is this something you wanted for a long time? have you talked about it? it never occurred a possibility. i never thought it. the fact of the matter when you think what we’ve been focused on the last five to six years and where we were, this is not really in contemplation. we felt as an institution really terrific about it. in some ways you know — this has not been an easy time for anybody. nobody has enjoyed dealing with the context for the last several years. we’ve been in the spotlight. to get a validation like that — i get surprises in my line of work and few are positive. a wise person once said with great power comes great responsibility. i think it was spiderman’s father. now with dow, there’s a high priced stock. it used to be the bank of america, positive stuff. you’re in dow now. it’s not all about goldman sachs now. it’s about the dow. this black box, trading, making money everyday. think about that okay? it’s about the dow. that’s

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