The Federal Reserve may not taper its stimulus efforts soon as the U.S. economy has failed to pick up and inflation remains low, Goldman Sachs Group Inc. President Gary D. Cohn said.
“If you look at where we are economically, versus where we were a year ago, we’re virtually in the exact same place,” Cohn, 53, said today in a Bloomberg Television interview with Stephanie Ruhle. “So if quantitative easing made sense a year ago, it probably still makes sense today.”
The Fed decided in September not to taper its $85 billion in monthly bond purchases designed to help stimulate the U.S. economy. The decision’s announcement sent the yield on 10-year Treasury bonds down the most in almost a year. Federal Reserve Bank of Chicago President Charles Evans said Oct. 21 that this month’s government shutdown amid congressional budget disagreement will probably further delay tapering.
The decline in the U.S. jobless rate to 7.2 percent in September occurred as people gave up looking for work, not by creation of “real jobs,” Cohn said. Janet Yellen, President Barack Obama’s nominee to be the next Fed chairman, understands the competing objectives the central bank faces, Cohn said.
“They’re in a position where they know they can’t quantitatively ease forever, they know they’re building a bigger and bigger balance sheet, but their No. 1 objective is to try and grow the U.S. economy,” Cohn said. “I do believe eventually they will taper. Eventually can be a very long time.”
Goldman Sachs shouldn’t repeat its error of pulling back in emerging markets while they’re weak this year, Cohn said. Economic growth in nations such as Brazil and China has slowed from post-crisis highs, leading to a 2 percent drop in the MSCI Emerging Markets Index so far this year, a span that included a 9.1 percent tumble during the second quarter.
“If the industry has made a mistake, or we at Goldman have made a mistake in emerging markets, it’s that we’ve tended to contract our business at the bottom of the cycle,” Cohn said. “You need to invest at the bottom of the cycle to be ready for the top.”
Goldman Sachs said this week that J. Michael Evans, a vice chairman who led emerging-markets businesses, is retiring after more than 20 years at the New York-based firm.
“Someone coordinating what we’re doing in the various growth markets around the world is important, and we will ultimately fill that seat,” Cohn said.