Goldman Sachs CEO Lloyd Blankfein gives the Federal Reserve credit for ignoring critics who say the slow process to withdraw from its massive easing program risks igniting inflation.
The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008, and its balance sheet has mushroomed to $4.5 trillion, thanks to quantitative easing (QE).
"They've handled it right — they've handled it in a cautious way," Blankfein tells CNBC
"In some ways they have been courageous, because if everything goes well, it will turn out that they [interest rates] didn't need to be this low for so long. It's like an insurance premium that they're paying," he notes.
"They've been wise and courageous and will subject themselves to second guessing, because if the U.S. economy is established, in good shape and goes on from here, then everyone will second guess them and say you shouldn't have been this light for so long."
If the Fed erred on the side of hawkishness, the results could be dire, Blankfein argues. "The consequences of slipping into deflation are very extreme, because what tools do we have to reverse that? Better to play it on the safe side and keep rates lower."
Many economists don't expect the Fed to raise rates until at least late 2015, and Deutsche Bank analysts say there's a good chance the central bank won't move until 2016.
Fed officials in recent days have expressed concern about boosting rates too fast. "If it starts early, not only does it risk having to reverse rate hikes, but it might need in desperation to resort to QE again," the Deutsche analysts predict, according to The Wall Street Journal
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