In an interview on CNBC’s Squawk Box on Thursday, he listed some potential risks lurking in financial markets. 

“I look at credit spreads being so narrow, so much money going to private credit, people trying to goose their returns a little bit by leveraging up in kind of odd ways at the portfolio level,” Blankfein said.

He added that plenty of assets are being placed in insurers as a way for those companies to generate higher yields on long-term liabilities. However, he said if he were an insurance regulator, he might begin to question the true value of those assets.

“There’s a lot of 1% risk, but it’s not a 1% risk that something bad will happen,” he continued in the interview. 

Blankfein warned there’s been a “crisis of the century every four or five years.” That includes Mexico’s 1994 debt crisis, the Russian debt default and Long-Term Capital Management bailout in 1998, the 2001 dotcom bubble, and Great Financial Crisis. Essentially, Blankfein said, expect the unexpected.

“I’m saying we’re due, and it doesn’t matter that you can’t see where it’s coming from.” 

But for now,  Blankfein is “100% in equities” as a result of the Federal Reserve poised to lower rates in a budding bull market.

Wall Street widely sees the Fed cutting rates next week as jobs numbers slumped in July and August. But with inflation rising on President Donald Trump’s tariff policies, banks have been split on the health of the economy. Earlier this month, UBS predicted a 93% risk of a recession. Deutsche Bank, however, has been more bullish, raising its year-end S&P 500 target on Thursday from 6,550 to 7,000.

Risks of the U.S. private credit market

Blankfein’s concerns about the narrowing of credit spreads and the continuing swell of private credit speak to potentially hidden risks.

Credit spreads are at their tightest in about 20 years, meaning there is little difference in yields between corporate bonds compared to government bonds. While this usually indicates a healthy corporate sector, some worry this narrowness may lead investors to misprice risks, particularly as some industries hit snags in an uncertain economic environment.

Private credit has similarly boomed, becoming a $1.7 trillion-dollar industry, as higher interest rates lead to higher yields for investors.

Blankfein isn’t the first banking veteran to sound the alarm on the risks of private credit, which often lacks liquidity and clear indicators about the quality of the credit. JPMorgan CEO Jamie Dimon warned in July that private credit could become a “recipe for a financial crisis.” 

Regulators from the International Monetary Fund have also increased scrutiny of private credit markets, finding in an April Financial Stability Report that more than 40% of companies using private credit had negative cash flow from operations by the end of 2024, suggesting increased strain on financial systems.