Goldman Sachs CEO says U.S. economy likely to avoid recession, warns of persistent inflation

Introduction

Goldman Sachs CEO David Solomon believes that the U.S. economy is on track to avoid a significant recession. However, he also warns that inflation is likely to be more persistent than what market participants currently expect. In an interview with Reuters, Solomon expressed optimism about the current economic environment but emphasized that there is still work to be done.

Inflation and Interest Rates

• Solomon believes that inflation will be more sticky than optimistic views suggest.
• The Federal Reserve has managed to control inflation through interest rate increases, but further action may be necessary.
• The future trajectory of U.S. Treasuries’ forward curve shows declining rates, but Solomon cautions that this is still uncertain.
• Traders in Fed funds futures largely predict that rates will remain unchanged until May or June next year, when rate cuts may begin.

Capital Markets and IPOs

Optimism about the U.S. economy avoiding a recession has led to a reopening of capital markets. Solomon notes that there have been significant initial public offerings (IPOs) this month, many of which Goldman Sachs has been involved in. One notable IPO is Arm, the chip designer owned by SoftBank Group Corp, which is close to raising $5.4 billion in New York.

Mergers and Acquisitions

While capital markets are reopening, Solomon expects mergers and acquisitions to be slower to resume due to lingering uncertainty. Companies are cautious about making strategic decisions until they have a clearer picture of the economic environment.

Impact of Proposed Capital Rules

Solomon criticizes U.S. proposals to raise capital requirements for larger banks, echoing comments from other bank CEOs. He believes that these capital rules will have a negative impact on economic growth and hinder large and small businesses’ access to capital. JPMorgan Chase CEO Jamie Dimon also expressed concerns about the proposed rules potentially stifling economic growth.

Departures of Senior Bankers

Goldman Sachs has experienced several departures of senior bankers since its reorganization into three units last year. Solomon acknowledges that combining or reshuffling businesses often leads to disruption and volatility. The bank has scaled back its consumer business and has seen losses of $3 billion in the past three years.

About the Author

Lananh Nguyen is the U.S. finance editor at Reuters in New York. She has extensive experience in reporting on Wall Street and banking. Nguyen holds a B.A. in political science from Tufts University and an M.Sc. in finance and economic policy from the University of London.

Reporting by Saeed Azhar and Lananh Nguyen; Additional reporting by Davide Barbuscia; Editing by Sharon Singleton, Leslie Adler and Aurora Ellis

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