CNBC Exclusive: CNBC Transcript: Goldman Sachs Chairman & CEO Lloyd Blankfein Speaks with CNBC from the World Economic Forum in Davos Today

WHEN: Today, Wednesday, January 18th

WHERE: CNBC's "Squawk on the Street"

Following is the unofficial transcript of a CNBC interview with Goldman Sachs Chairman and CEO Lloyd Blankfein live from the World Economic Forum in Davos, Switzerland. For a roundup of all the CNBC interviews from Davos, go to davos.cnbc.com.

All references must be sourced to CNBC.

ANDREW ROSS SORKIN: HEY, CARL. GREAT TO SEE YOU. WE ARE WITH LLOYD BLANKFEIN, THE CEO OF GOLDMAN SACHS, WHO THIS MORNING ANNOUNCED EARNINGS WHICH BEAT THE STREET HANDILY, QUADRUPLING PROFITS. CONGRATULATIONS ON THAT. BUT A HUGE PIECE OF IT WAS THE FIXED INCOME PIECE. WE WANT TO TALK ABOUT THE TRUMP ADMINISTRATION AND THE ECONOMY AND WHERE THE WORLD OF WALL STREET'S GOING, BUT ON EARNINGS ALONE, HOW SUSTAINABLE IS THE FIXED INCOME PIECE? WHERE DO YOU THINK THIS IS ALL HEADED?

LLOYD BLANKFEIN: YOU KNOW, WE'VE ALWAYS BEEN COMMITTED TO THE FIXED INCOME BUSINESS. SOME PEOPLE WERE PULLING BACK FROM IT. I THINK THE FIXED INCOME BUSINESS IS GOING TO BE IN A CYCLICAL TROUGH WHEN INTEREST RATES ARE CLOSE TO ZERO AND THERE'S NO YIELD CURVE. WE DIDN'T THINK THAT WAS A PARTICULARLY SUSTAINABLE SITUATION. SO AS THE WORLD GETS A LITTLE GROWTH HERE AND AS RATES GET RAISED AND AS PEOPLE ANTICIPATE FURTHER RAISING OF INTEREST RATES, THOSE MARKETS OF COURSE BECOME A LOT MORE INTERESTING. AND –

JOE KERNEN: YOU SEPARATED THE TWO. WE WANT TO TALK ABOUT TRUMP, TOO, BUT I THINK -- ISN'T SOME TRUMP EFFECT ALREADY IN THESE RESULTS IN FIXED INCOME THAT YOU SAW?

BLANKFEIN: YEAH, I THINK ONE OF THE REASONS WHY THE ELECTION HAD SUCH A DRAMATIC EFFECT IS BECAUSE IT WAS DRAWING PEOPLE IN THE DIRECTION THAT IT WAS ALREADY HEADING. I THINK THE MARKETS WERE IMPROVING. YOU KNOW, THE FED'S FOCUS ON THE LIKELIHOOD OF THEM RAISING RATES, THE GROWTH WAS ALREADY IN IT. WE WERE ALREADY GETTING AT OR NEAR FULL EMPLOYMENT.

KERNEN: BUT?

BLANKFEIN: I THINK THAT WAS ALREADY BAKED IN. AND OF COURSE, THE FACT THAT, YOU KNOW, PRESIDENT-ELECT TRUMP'S PLATFORM IS, YOU KNOW, IS SO STIMULATIVE IS JUST GOING IN THE DIRECTION OF THE TAILWIND --

KERNEN: BUT YOU CAN -- DELTA SAID THEY SAW, THEY COULD DRAW A LINE BETWEEN WHAT HAPPENED AND SOME IMPROVEMENT IN THEIR RESULTS. WOULD YOU SAY THE SAME THING ABOUT YOUR RESULTS --

BLANKFEIN: NO, NO, DEFINITELY FILLED PEOPLE WITH GREATER CONFIDENCE. LISTEN, IT'S A REALITY, BECAUSE THE EXPECTATION IS, YOU KNOW, A LOT OF HIS COMMITMENTS WERE LOWER TAXES, MORE SPENDING ON INFRASTRUCTURE, MAYBE MORE SPENDING ON THE MILITARY AS WELL, PEELING AWAY SOME OF THE REGULATION, WHICH IS ALSO KIND OF A STIMULUS TO THE MARKET, AND THOSE ARE GOING TO BE REAL --

KERNEN: SO, NOT JUST ANIMAL SPIRITS YOU'VE ALREADY SEEN IT?

BLANKFEIN: YES, AND BY THE WAY, IT'S ALSO NOT JUST THE DIFFERENCE BETWEEN THIS NEW SET OF EXPECTATIONS AND THE STATUS QUO, IT'S ALSO THE DIFFERENCE BETWEEN THE NEW SET OF EXPECTATIONS AND WHAT WAS BUILT IN HAD THE PUNDITS BEEN CORRECT AND SOMEBODY ELSE WON THE ELECTION--

SORKIN: THE QUESTION WE'VE BEEN ASKING EVERYBODY ON SET SINCE WE'VE BEEN HERE IN DAVOS, AND WE JUST TALKED TO JAMIE DIMON ABOUT THIS -- HOW MUCH OF THIS IS BAKED INTO THE STOCK MARKET ALREADY? MEANING, ARE WE PRICED TO PERFECTION ALL OF THESE THINGS, WHETHER IT'S TAX REGULATIONS, ET CETERA, OR IS THERE REALLY A LOT MORE ROOM TO MOVE, IF, IN FACT, THESE THINGS GET DONE?

BLANKFEIN: NO, I THINK, LOOK, THERE'S A LOT THAT CAN GO WRONG, BUT I THINK WE'RE AT THE BEGINNING OF A CHANGE IN THE CYCLE. SO I DON'T THINK -- I THINK THERE COULD BE A LOT MORE ROOM. EVEN IF IT GOES -- BUT IF IT FALTERS OR SOMETHING GOES WRONG OR A RISK POPS UP WE HAVEN'T ANTICIPATED, IT WON'T, BUT MY BASE CASE IS IT WILL KEEP ON GOING.

SORKIN: HAVE YOU CHANGED YOUR ECONOMIC FORECAST INTERNALLY, DO YOU SAY TO YOURSELF IT'S POSSIBLE THAT ECONOMIC GROWTH IN THE UNITED STATES WILL BE 3%-PLUS OR MORE?

BLANKFEIN: YES, IT'S POSSIBLE. I THINK OUR WRITING ON THE TOPIC IS, YOU KNOW, 2.5% TO 3%. BUT IT COULD GET --

SORKIN: DO YOU THINK IT GETS TO 3.5%, 4%?

BLANKFEIN: I DON'T KNOW. I THINK -- IN THE RANGE OF THINGS THAT I PLAN FOR, IT IS A DISTINCT POSSIBILITY THAT THINGS WORK OUT OKAY.

BECKY QUICK: YOU KNOW, LLOYD, YOU ARE A RISK MANAGER. THAT'S WHAT YOU DO. HOW DO YOU ASSESS THE POTENTIAL RISKS AROUND THE SITUATION?

BLANKFEIN: OH, MY GOD. LOOK, I SPEND 98% OF MY TIME THINKING ABOUT THE 2% OF THE THINGS THAT CAN GO WRONG. SO, I CAN GO ON FOR A LONG TIME ON THAT. YOU KNOW, THERE'S A LOT OF THINGS YOU WORRY ABOUT. I WORRY ABOUT, YOU KNOW, I WORRY ABOUT EUROPE, WORRY ABOUT -- PICK A PLACE, I CAN TELL YOU WHAT CAN GO WRONG IN THAT PLACE. AND OF COURSE, WE PLAN FOR THAT. BUT I THINK THERE IS A RISK HERE, SOME SMALL RISK THAT THINGS ACTUALLY WORK OUT AND WE ALL MUDDLE THROUGH. AND IF YOU ASK ME, I THINK THAT'S ACTUALLY THE LIKELY OUTCOME. BUT YOU KNOW, THERE'S A --

SORKIN: THERE'S NOT A SMALL RISK, THAT'S A BIG RISK.

BLANKFEIN: IT'S A BIG RISK TO THINK WE WILL MUDDLE THROUGH. BUT BASICALLY -- AND AGAIN, I WOULD SAY THAT IT'S EXACERBATED BY THE POLITICS AT THE MOMENT, BUT I DON'T THINK THAT THAT'S THE INITIAL CAUSE. IT WAS GOING IN THIS WAY.YOU KNOW, THE BASIC BONES OF THE U.S. ECONOMY IS GOOD. YOU KNOW, LOOK, THE BALANCE SHEETS OF COMPANIES AND BALANCE SHEETS OF INDIVIDUALS HAD BEEN FIXED. AGAIN, I'M TALKING ABOUT FULL EMPLOYMENT, WAGE GROWTH. IT WAS GETTING INTO WAGE INFLATION WAS COMING BACK IN. ENERGY SITUATION IS VERY, YOU KNOW, BENIGN IN THE COUNTRY. I'D SAY IT WAS, YOU KNOW, FUNDAMENTALLY, THINGS WERE KIND OF GETTING BETTER ANYWAY. AND SO, THIS IS PUSHING IN THE DIRECTION OF THE MOMENTUM.

SORKIN: WHAT ARE THE IMPLICATIONS OF SO MANY PEOPLE FROM GOLDMAN SACHS, INCLUDING GARY KOHN, NOW DINA POWELL, STEVE MNUNCHIN, FORMER -- OBVIOUSLY, STEVE BANNON, ANTHONY SMARAMUCCI ALL FORMER GOLDMAN SACHS PEOPLE. HOW DO YOU THINK ABOUT THEM BEING IN GOVERNMENT NOW IN TERMS OF YOUR BUSINESS?

BLANKFEIN: LOOK, I'M VERY HAPPY IF GOOD PEOPLE GO INTO THE GOVERNMENT. I THINK EVERYBODY MENTIONED ITS PRETTY GOOD. I THINK IT'S KIND OF – YOU KNOW, OBVIOUSLY, THERE'S AN ISSUE THERE'S TOO MUCH CONCENTRATION FROM A SINGLE PLACE, WHETHER IT'S A COMPANY, WHETHER IT'S A REGION, WHETHER IT'S AN INDUSTRY, BUT I THINK WHAT'S HAPPENING IS THEY'RE PICKING PEOPLE INDIVIDUALLY, AND GUESS WHAT, THERE'S A LOT OF PEOPLE THAT -- YOU KNOW, ALSO,WHO DO PEOPLE KNOW? AND YOU THINK OF, THERE ARE A LOT OF PEOPLE IN OUR FIRM WHO HAVE HAD A VERY HIGH PROFILE FOR A LONG TIME, SO SOME OF THOSE PEOPLE ARE GOING INTO GOVERNMENT AND THEY'RE PUBLIC SERVICE MINDED. AND WE'VE HAD A TRADITION -- THIS IS NOT A NEW THING FOR US. I'M A LITTLE DEFENSIVE ABOUT THIS, BECAUSE IN THE LAST CYCLE, WE WERE MADE TO FEEL A BIT DEFENSIVE BECAUSE PEOPLE FROM GOLDMAN SACHS SACHS HABITUALLY WENT AT THE END OF THEIR CAREER, BUT NOT AT THE END OF THEIR LIFE NOT THEIR BUSINESS LIFE WOULD GO INTO PHILANTHROPY OR GO INTO PUBLIC SERVICE, AND THAT WAS ALWAYS A GOOD THING, AND IT BECAME SORT OF PER JURORTIVE THAT PEOPLE WOULD COMMIT THEMSELVES AND SACRIFICE FINANCIALLY AND GO INTO PUBLIC SERVICE, BUT THAT'S BEEN A LONG TRADITION. MY LAST FIVE PREDECESSORS WENT INTO THE GOVERNMENT, PEOPLE LIKE BOB RUBIN AND STEVE FRIEDMAN AND HANK PAULSON AND JOHN WHITEHEAD –

QUICK: WOULD YOU GO INTO THE GOVERNMENT? YOU'RE SAYING YOUR LAST FIVE PREDECESSORS HAVE.

BLANKFEIN: YOU KNOW, THE ONE SIX BACK DIED AT HIS DESK, SO MAYBE THAT'S MY WAY OUT.

KERNEN: SO, THIS MOVE TOWARDS NATIONALISM, POPULISM, BREXIT, TRUMP, DOES IT BECOME LE PEN? DOES IT -- HAVE WE HIT THE NADER, OR ARE WE STILL CLIMBING, AND DOES THAT MEAN THE END OF THE EUROZONE?

BLANKFEIN: I DON'T KNOW. TWO POINTS DETERMINE A LINE, BUT TWO DATA POINTS DON'T NECESSARILY MAKE FOR A – YOU KNOW, YOU CAN'T DEFINE A POLITICAL ERA FROM THAT. I'M STILL DIGESTING WHAT ALL THIS STUFF MEANS.

KERNEN: WHAT ABOUT EUROPE? WILL IT BE HERE? FIVE YEARS FROM NOW --WILL THE EURO STILL BE THE CURRENCY FIVE YEARS FROM NOW?

BLANKFEIN: I THINK SO, BUT THERE ARE -- YOU KNOW, LOOK, THIS IS STILL THE GESTATION IN THE SCHEME OF THINGS. THIS IS STILL -- THEY'RE STILL WORKING ON THE FOUNDATIONAL PRINCIPLES OF WHAT IT MEANS. THIS WAS SUPPOSED TO BE AN EVOLUTION OF -- YOU KNOW, IT WAS A POLITICAL REPROACHMENT, AND IT WAS AIMED AT, YOU KNOW, FOR POLITICAL REASONS ENDING WARS, TO ACCOMPLISH THAT OBJECTIVE RBUT OVER TIME IT WAS SUPPOSED TO EVOLVE INTO AN ECONOMIC UNIT. THAT'S COMPLICATED. THAT'S VERY HARD TO DO IF IT'S NOT DONE, IT'S NOT ACCOMPLISHED. SO WE'RE FINDING THE PAIN OF THAT, OF PEOPLE SUBMIT – YOU KNOW, OF PEOPLE SUBMITTING AND BRUSSELS GETTING INVOLVED IN VERY, VERY FINE REGULATORY ISSUES IN SPECIFIC COUNTRIES, AND THAT FORM OF FEDERALISM HAS TO BE WORKED OUT. FEDERALISM WASN'T WORKED OUT IN THE UNITED STATES UNTIL FOUR SCORE AND SEVEN YEARS AFTER THE COUNTRY WAS FORMED. IT TOOK THE CIVIL WAR TO SORT IT OUT IN THE U.S. I DON'T THINK IT WILL TAKE THAT HERE. BUT LET'S NOT UNDERESTIMATE HOW, YOU KNOW, HOW THE BIRTHING OF WHAT WE THINK OF NOW AS THE AMERICAN SYSTEM, THE FEDERALISTSYSTEM, TOOK PLACE.

SORKIN: I'M TALKING ABOUT THE UNITED STATES, I JUST WANTED TO GO BACK AND TRY TO UNDERSTAND WHAT YOU THINK'S GOING TO HAPPEN, ESPECIALLY GIVEN THAT YOU'RE IN THE MIDDLE OF WORKING FOR SO MANY MULTINATIONALS WHO MAY BE THINKING ABOUT MERGERS AND ACQUISITIONS, ESPECIALLY IF WE ACTUALLY GET SOME OF THE TAX PROPOSALS, ESPECIALLY THE REPATRIATION THROUGH. WHAT DO YOU THINK HAPPENS?

BLANKFEIN: WELL, I THINK THAT THERE'S A LOT OF PENT-UP INTEREST. LOOK, COMPANIES HAVE MADE THEMSELVES -- YOU USED THIS LAST PERIOD OF TIME TO GET -- LOOK, EVERY TIME I WANT TO THINK OF WHAT OTHER COMPANIES ARE DOING, I THINK WHAT OF WHAT WE DO, BECAUSE THAT'S THE BEST INDICATION, REALLY. AND WE USED THIS LAST PERIOD OF TIME WHEN THE ECONOMY WAS RELATIVELY SLOW AND GROWTH WAS SLOW TO REALLY, YOU KNOW, TIGHTEN OURSELVES UP, MAKE OURSELVES TIGHT AND MORE NIMBLE, MORE EFFICIENT. AND I THINK A LOT OF COMPANIES HAVE DONE THAT. THEY POSITIONED THEMSELVES TO NOW THINK STRATEGICALLY. PEOPLE HAVE PLENTY OF – YOU KNOW, PLENTY OF CASH, BALANCE SHEETS ARE IN GOOD SHAPE. PEOPLE CAN GIVE SOME EFFECT TO THEIR STRATEGY BY LOOKING AND MAKING SOME ACQUISITIONS HERE AND DECIDE REALLY WHAT BUSINESSES THEY WANT TO BE IN AND WHAT BUSINESS THEY DON'T WANT TO BE IN. THERE WILL BE SOME SELLERS OF BUSINESSES AND SOME ACQUIRERS OF BUSINESSES. AND I THINK THE FACT THAT IF ADDITIONAL CASH COMES IN THAT WILL BE A POSITIVE FOR THE M&A MARKET.

QUICK: WHEN YOU LOOK JUST BEYOND MERGERS AND ACQUISITIONS, I MEAN THE THINGS YOU'RE TALKING ABOUT COULD ALSO LEAD TO MORE HIRING, ADDITIONAL JOB GROWTH. IT COULD LEAD TO INVESTMENT -- NOT NECESSARILY FOR YOUR COMPANY ALONE, BUR FOR INVESTMENT BACK IN?

BLANKFEIN: SURE. ONE OF THE THINGS PEOPLE TALK ABOUT IS THEY TALK ABOUT THAT COMPANIES RETURNING MONEY IS ADVERSE TO INVESTING. BUT WHEN COMPANIES ARE RETURNING MONEY, THEY'RE GIVING IT TO INVESTORS WHO THEN TURN AROUND AND INVEST IT THEMSELVES. MONEY IS GOING TO BE INVESTED, IT'S JUST A QUESTION OF WHETHER THE COMPANY IS MAKING THAT DECISION OR THEY ARE RETURNING THE MONEY TO THEIR SHAREHOLDERS EITHER THROUGH DIVIDENDS AND BUY BACKS, AND LETTING THE SHAREHOLDERS. IT'S VERY INTERESTING THAT PEOPLE TALK ABOUT RETURNING MONEY TO SHAREHOLDERS AS IT IS IF IT'S UNPATRIOTIC OR UNECONOMIC.

QUICK: OR AS IF IT DISAPPEARS OUT OF THE ECONOMY.

BLANKFEIN: BUT I REMEMBER IN ANOTHER ENVIRONMENT PEOPLE WERE CRITICAL OF COMPANIES THAT WERE SPENDING MONEY AND INVESTING IN THEIR OWN INDUSTRIES EVEN THOUGH THAT MIGHT NOT HAVE BEEN THE BEST PLACE TO INVEST AND PEOPLE ARE SAYING RETURN THE MONEY TO SHAREHOLDERS AND LET THE SHAREHOLDERS DECIDE.

KERNEN: INCOME INEQUALITY.

BLANKFEIN: AND I HEAR IT ALL THE TIME. AND THERE'S ALMOST NO OPPOSITION TO IT. BUT I THINK IT'S A PERFECTLY LEGITIMATE THING TO MAKE AN ASSESSMEN:T CAN I USE THIS MONEY IN OUR BUSINESS OR IS IT BETTER SERVED, AM I SERVING MY SHAREHOLDERS BETTER BY GIVING THE MONEY TO THEM AND LET THEM – MAYBE THEY WANT TO INVEST IN SILICON VALLEY.

KERNEN: AND SHAREHOLDERS INCLUDE 401KS AND PENSION PLANS. IT'S NOT ALL FAT CATS.

BLANKFEIN: OF COURSE, OF COURSE. BUT I DON'T THINK THE MONEY IS GOING TO BE CYCLED INTO INVESTMENT, WHETHER WE MAKE THAT INVESTMENT DECISION OR WE ALLOW OUR SHAREHOLDERS TO DO IT.

SORKIN: WHEN YOU SPEND TIME WITH YOUR TEAM AND YOUR LAWYERS --

BLANKFEIN: BY THE WAY, A LOT OF INDUSTRIES ARE HIGHLY REGULATED AT THE MOMENT AND MAY FIND IT HARD TO MAKE THOSE INVESTMENTS.

SORKIN: THAT'S WHAT I WAS GOING TO ASK YOU ABOUT IS DO YOU THINK THAT'S GOING TO CHANGE UNDER A DEFANGED DODD FRANK, IF THAT'S WHAT IT'S GOING TO BE?

BLANKFEIN: IF IT'S ALL RIGHT WITH YOU I'M NOT GOING TO ADAPT YOUR FORMULATION. BUT I THINK THE PRESIDENT-ELECT HAS ALREADY SAID -- AND I'LL SAY IT IN MY OWN VOICE. THERE HAS BEEN -- FOR VERY GOOD REASON, REGULATION CAME ON VERY HEAVILY, ESPECIALLY IN OUR INDUSTRY. AND IT WAS NO -- AND THE PENDULUM MAY HAVE GONE TOO FAR. I'M NOT SURE THE REGULATORS WOULD HAVE DRAFTED ALL THE LAWS THAT DRIVE THEIR REGULATORY -- THEIR BURDEN IS TO FILL IN AND ACCOMPLISH THE OBJECTIVES AS STATED IN THE INITIAL LEGISLATION. I THINK IT'S TIME TO LOOK AT THIS STUFF, NOT ALL -- NOT ALL THE REGULATION IS SERVING THE INTEREST OF SAFETY AND SOUNDNESS AND CERTAINLY ON A COST BENEFIT ANALYSIS IT'S NOT. THAT'S NOT SAYING WE WANT REPEAL OF ALL REGULATION OR REPEAL OF DODD FRANK OR EVERYTHING LIKE THIS. WE WANT TO TAKE ANOTHER SENSIBLE LOOK AT THIS STUFF -- NOW THAT HAVE WE EXPERIENCE IN OPERATING.

SORKIN: KEN GRIFFIN RECENTLY SAID IN CHICAGO HE DIDN'T THINK GOLDMAN SACHS SHOULD NECESSARILY BE A BANK, STILL BE CONSIDERED A BANK BY THE FEDERAL RESERVE, HAVE ACCESS IN THE WAY THAT IT DOES.

BLANKFEIN: WELL, I THINK THE WAY THE RULES ARE NOW WHERE STRATEGICALLY IMPORTANT FINANCIAL INSTITUTIONS ARE GOING TO BE REGULATED IN A BANK-LIKE FASHION, THERE'S NO -- THE ONLY PRACTICALITY OF DEBANKING WOULD BE FOR US TO LOSE THE BENEFITS OF BEING A BANK BUT NOT NECESSARILY THE REGULATORY BURDENS OF BEING A BANK. SO WE WOULD HAVE TO REDO THE REGULATORY SCHEME FOR US TO THINK REALISTICALLY OF DOING WHAT IT WOULD TAKE TO FOREGO OUR STATUS AS A BANK.

SORKIN: AND I WAS GOING TO ASK YOU WHAT YOU KNOW ABOUT JAY CLAYTON WHO HAS BEEN PUT UP AS THE HEAD OF THE SEC, SULLIVAN & CROMWELL LAWYER, HAS DONE A LOT OF BUSINESS FOR GOLDMAN SACHS OVER THE YEARS?

BLANKFEIN: HE HAS A TERRIFIC REPUTATION IN OUR FIRM. I'VE NEVER MET HIM.

SORKIN: AND DO YOU HAVE ANY EXPECTATION OF THE WAY HE THINKS ABOUT THE WORLD?

BLANKFEIN: WELL, I CAN -- I'M VERY FREE IN GIVING AN OPINION SINCE I'VE NEVER MET HIM OR TALKED TO HIM, BUT I DON'T THINK IT WOULD BE -- I DON'T THINK HE WOULD WANT ME SPEAKING FOR HIM.

KERNEN: GOING BACK TO THESE EARNINGS. SOME OF THE NUMBERS ARE LIKE UP 78% YEAR OVER YEAR. AND I KNOW THINGS ARE GETTING BETTER. THINGS HAVE BEEN GETTING BETTER FOR EIGHT YEARS AND WE'VE BEEN WAITING TO GO ABOVE 2% FOR EIGHT YEARS. I MEAN, IT SEEMS -- IT SEEMS LIKE IT'S HAPPENING THIS TIME.

BLANKFEIN: I HOPE, LOOK, I HOPE IT – I HOPE IT STAYS THAT WAY. IT'S OFF A BASE THAT BUYERS ARE HISTORICAL PERFORMANCE IS A LOWER BASE SO IT'S EASIER TO GET HIGHER PERCENTAGES. I THINK IT'S GOING IN THE RIGHT WAY. WE LIKE IT. WE'RE NOT -- AND THE CONDITION -- YOU KNOW, CONDITIONS HAVE IMPROVED.

KERNEN: YOU KNOW YOUR STOCK HAS BEEN THE BEST DOW COMPONENT SINCE NOVEMBER 9th.

BLANKFEIN: YEAH.

KERNEN: THAT'S YOU THOUGH. THAT'S NOT TRUMP.

BLANKFEIN: NO, LOOK, HE'S PART OF THE MACRO ENVIRONMENT. LIKE I SAID, IT'S NOT ONLY THE DIFFERENCE BETWEEN HIS PLATFORM IS HIGHLY STIMULATIVE. I LIKE THAT PART OF IT. BY FAR. AND NOT JUST IN THE COMPARISON IS NOT JUST TO THE STATUS QUO ANTE, IT'S THE COMPARISON TO WHAT WE WOULD HAVE HAD IF THE ELECTION HAD GONE THE OTHER WAY.

KERNEN: WHAT DO YOU THINK?

BLANKFEIN: WHICH IS INCREASED TAXES AND MORE REGULATION. SO IT'S QUITE A BIG DELTA BETWEEN THE TWO THINGS. THAT'S VERY FAVORABLE.

KERNEN: SO, IN HINDSIGHT, DO YOU WISH YOU HAD BACKED THE OTHER HORSES, THEN? OR DO YOU LIKE MORE REGULATION AND HIGHER TAXES?

BLANKFEIN: LOOK, I HOPE – I DON'T LIKE MORE REGULATION. I DON'T LIKE HIGHER TAXES.

KERNEN: WELL, YOU JUST SAID THAT'S WHAT WE WOULD HAVE GOTTEN.

BLANKFEIN: BUT THERE'S OTHER THINGS, THERE'S OTHER FACTORS AT WORK HERE, TOO. LOOK, I'M DYING TO LIKE – LET ME PUT IT THIS WAY. I AM DYING TO LOOK BACK AT THIS AND LIKE THE OUTCOME OF IT AND I'M CERTAINLY GOING TO BEHAVE IN AS SUPPORTIVE OF A FASHION AS I POSSIBLY CAN TO MAKE SURE THAT I LIKE IT.

KERNEN: GOOD.

SORKIN: OKAY.

QUICK: CAN WE TALK ABOUT INTEREST RATES AGAIN?

BLANKFEIN: SURE.

QUICK: WHERE DO YOU SEE INTEREST RATES HEADED? THERE ARE SO MANY DIFFERENT OPINIONS THAT WE GET. SO MANY DIFFERENT OPINIONS WE GET THAT INFLATION IS GOING TO STEP IN FASTER. WE SHOULD WORRY ABOUT A LOT OF DIFFERENT ISSUES. WHEN YOU LOOK AT IT, AND LOOK AT THE REST OF THIS YEAR, WHERE DO YOU SEE US ENDING THE FED FUNDS RATE AT THE END OF THIS YEAR?

BLANKFEIN: YOU KNOW, I THINK WHEN SENTIMENT SHIFTS, IF SENTIMENT SHIFTS, PEOPLE ARE GOING TO FORGET WHAT THEY THOUGHT FIVE MINUTES BEFORE.

QUICK: RIGHT.

BLANKFEIN: AND I THINK IF WE GET OURSELVES – YOU CAN GO FROM A MOMENT WHERE IT WAS SO RELUCTANT TO RAISE RATES TO A POINT IN TIME WHERE ALL OF A SUDDEN PEOPLE ARE SORT OF GETTING VERY ANXIOUS THAT WE'RE REALLY BEHIND. AND THEN THE SENTIMENT AND THE PRESSURES WILL SHIFT. I THINK IT'S GOOD TO SAY – IT'S GOOD TO HAVE FORWARD PROJECTIONS AND DOTS AND EXPECTATIONS AND BE AS OPEN, BUT YOU'RE ONLY OPEN WITH WHAT YOU THINK RIGHT NOW. LOOK, TO JOE'S POINT, THERE WAS A SHIFT IN SENTIMENT.

KERNEN: YES.

BLANKFEIN: AND WITH THAT SHIFT IN SENTIMENT YOU CAN, YOU KNOW, YOU CAN HAVE – AND AGAIN, WHEN WE'RE DEALING WITH MARKETS – LOOK, ECONOMICS IS NOT EVEN – IS NOT REALLY A HARD SCIENCE AND MARKETS IS ONE STEP FURTHER REMOVED THAN ECONOMICS FROM BEING A HARD SCIENCE.

KERNEN: RIGHT.

BLANKFEIN: AND MARKETS IS VERY, VERY MUCH SENTIMENT, AND CONFIDENCE, AND ALL THOSE KIND OF EMOTIONS THAT CAN REALLY CHANGE KIND OF QUICKLY. AND SO THE ANSWER IS, I'M IN LINE WITH PEOPLE'S EXPECTATIONS, TWO OR THREE MORE INCREASES. BLAH, BLAH, BLAH. BUT YOU KNOW SOMETHING? I'VE ALSO SEEN PEOPLE GO OVER A NICE EDGE OF SOMETHING AND FALL INTO A DIFFERENT ENVIRONMENT WHERE PEOPLE THINK MAYBE WE HAVE TO GO MORE.

QUICK: SO, THE RISK WOULD BE TO THE UPSIDE, THAT WE WOULD SEE ADDITIONAL –

BLANKFEIN: THERE'S RISK TO THE DOWN – THERE'S RISK TO THE UPSIDE BECAUSE THE CONSEQUENCES OF GETTING IT WRONG ON THE DOWNSIDE WERE SO SEVERE THAT PEOPLE WHO ARE CHARGED WITH THE POLICY APPROPRIATELY HELD OUT FOR LONGER BECAUSE, AGAIN, THE CONSEQUENCES OF DEFLATION ARE SO MUCH MORE SEVERE AND THERE'S NO REAL PLAYBOOK FOR DEALING WITH IT COMPARED TO INFLATION. AND A LOT OF, BY THE WAY, A LOT OF THE KIND OF MORE LIBERAL ECONOMISTS ARE URGING EVEN FORBEARANCE NOW BECAUSE THEY WOULD LIKE TO SEE INFLATION ESTABLISHED. I UNDERSTAND THEIR POINT. BUT I THINK AT THIS POINT, IT'S GETTING KIND OF GROWTHY OUTSIDE AND I THINK IT'S OKAY TO RAISE RATES.

KERNEN: WE DID HAVE – LIKE LARRY SUMMERS, ONE OF THE THINGS HE'S WARNING ABOUT –

BLANKFEIN: HE'S ONE OF THE PEOPLE I'M THINKING ABOUT.

KERNEN: YEAH.

SORKIN: HE THINKS THERE'S A SUGAR HIGH.

KERNEN: NO, BUT HE ALSO THINKS THAT WE COULD BE IN DANGER OF BEING TOO STIMULATIVE AND RATES GO UP TOO QUICK AND THEN INFLATION – I THINK WE HAVE TIME, DON'T WE?

BLANKFEIN: AGAIN, I SPEND ALL OF MY TIME THINKING OF TRYING TO DERISK VERY LOW PROBABILITIES. THERE IS THAT KIND OF PROBABILITY. BUT BY THE WAY, AT LEAST AT THIS POINT IF IT WENT THAT DIRECTION, THERE ARE THINGS WE CAN DO. NOW THAT WE'VE RAISED RATES, WE CAN LOWER RATES. WE CLOSE THE BUDGET DEFICIT BY RAISING TAXES. WE MAY NOT HAVE LIKED SEQUESTRATION, BUT WE DID IT. IN TERMS OF CUTTING SPENDING AND RAISING TAXES AND NARROWING IT. GUESS WHAT, IF WE NEEDED TO STIMULATE THE ECONOMY, THERE'S ROOM TO SPEND, INCREASE THE DEFICIT. WE CAN LOWER – YOU KNOW, NOW THAT WE'VE GONE THIS FAR, IT'S LESS DANGEROUS BECAUSE WE'RE IN A BETTER PLACE THAN WE WERE IN.

SORKIN: OKAY. LLOYD BLANKFEIN, WE ALWAYS APPRECIATE YOUR TIME. THANK YOU FOR HANGING OUT WITH US IN THE COLD THIS EVENING.

BLANKFEIN: THANK YOU.

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