Goldman Sachs President Gary Cohn has a straightforward way of describing what has been an unorthodox year for global economics and politics.
“I would characterize 2016 as the year of unpredictability.”
Between growth in China, up and down oil prices, interest rates around the world, Brexit and the U.S. election, it has been difficult for financial decision makers, political leaders and market participants to get a hold on how to manage the risk. The latest swing post-election is in the bond market, where prices have dropped since Donald Trump was elected.
“2016 has been a year of massive uncertainty so the market is reacting to a perception of stability and predictability,” he said.
In a discussion at the Global Financial Leadership Conference, Cohn also shared his thoughts on what the Federal Reserve has in store, and how the influence of the Fed has changed in the years since he joined Goldman Sachs in 1990.
“We have a global growth issue and we’re trying to solve it with domestic policy and it won’t work,” he said.
Since the economy is now global and the Federal Reserve’s policies are intended to address domestic monetary issues, they are often insufficient, according to Cohn.
“It’s a global monetary policy, and there’s only so much the Fed can do. When you’re the Fed, you look at the data that says you should raise rates, but there are other considerations. What will it do to the dollar, and how will that affect other currencies and monetary policies?”
He acknowledged that the Fed is limited to using its traditional tools to spur growth, even if that is insufficient to address global issues.
“The Fed, like other central banks, is in a really tough position trying to solve global growth problems with local solutions.”
In his conversation with CME Group Executive Chairman and CEO Terry Duffy, Cohn took a tour of some other issues facing global markets, including:
Brexit: “I think the U.S may be a significant beneficiary of Brexit. When in doubt, move to the safest and soundest jurisdiction in the world, which is the United States right now.”
Bonds: “In many respects, the perceived clarity the market thinks they’re getting, is leading people to believe we’re going into a higher rate, greater growth environment. People perceive more clarity than they did a week and a half ago.”
China: “Long term we continue to be very bullish on China,” Cohn said of Goldman
He added that China has executed on all their five, ten and fifty year plans: They’ve moved rural people to cities, built infrastructure, and created a consumptive population. “They know realistically that it’s going to take another generation of people to take people from the country, move to the city and spend money. It’s not the parents spending, it’s the next generation.”
United States:“I’m bullish on the U.S. Europe is the place I’m most concerned. China, the U.S. and the rest of the world, kind of look interesting to me.”
Cyber security: “We’re all inextricably linked and dependent on each other. In the cyber world, the bad men and women of the world are looking when to pull the trigger.”