Since December 2008, the central bank has held its benchmark rate at between zero and 0.25 percent, a record. It has been buying Treasury debt and mortgage-backed securities to reduce the cost of longer term borrowing as part of a policy known as quantitative easing. Yesterday that Fed's Open Market Committee said it is prepared to "increase or reduce" the pace of those purchases.

Blankfein said the Fed's actions are "sensible" given the potential effects of deflation. While the risk of inflation in the longer term is more likely than deflation, deflation can be more devastating to the economy, he said.

"I'd be most afraid of the economy sliding back into a deflationary period," Blankfein said. "Psychologically we are in a bit of a deflationary mindset," as companies and investors hoard cash.

Gary Cohn, Goldman Sachs's president and chief operating officer and a long-time deputy to Blankfein, said in February that he was concerned some investors don't understand that bonds will lose value when interest rates eventually rise.

David Fuller's view Everyone in the US stock market knows that the next big monetary policy decision will be an unsettling reduction in the amount of quantitative easing (QE).

However, until the rising consolidation ends, we will know that more people are still jumping onto this uptrend (historic monthly & weekly), rather than off.

What might cause the Fed to reduce QE? I can think of four factors: 1) stronger US GDP growth; 2) higher commodity prices; 3) lower unemployment data, defined as 6.5%; 4) concern that the stock market is becoming overvalued.

We have little evidence of 1, 2 or 3, but the stock market has surprised everyone by its strength since last November's reaction low.

Meanwhile, a cynic might conclude that Goldman Sachs is building a short position, possibly because Wall Street is near historic highs and due for a bigger reaction than we have seen since last November.