Goldman Sachs CEO David Solomon Isn’t so Sure the US Will Avoid a Recession

• The US economic system seems robust and inflation has cooled from its highs in 2022.
• That is spurring hopes that the US will have the ability to keep away from a recession.
• Nonetheless, Goldman Sachs CEO David Solomon mentioned he thinks “it is a little bit extra unsure than that.”

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The US economic system seems actually strong — GDP grew 3.3% within the fourth quarter, the job market is powerful, and inventory markets are on hearth.

To high that off, inflation has cooled from the highs of 2022 — even when it is nonetheless above the Federal Reserve’s 2% goal — after the Fed hiked charges relentlessly from March 2022 to July 2023.

This state of affairs is elevating hopes that the Fed will have the ability to obtain a “gentle touchdown” the place the economic system cools sufficient to deliver inflation down with out falling right into a recession.

Nonetheless, David Solomon, the CEO of Goldman Sachs, mentioned at a UBS convention on Tuesday that we should not be too optimistic.

“The world is about up for a gentle touchdown,” mentioned Solomon. The markets are pricing in a excessive likelihood of it too, he added.

Nonetheless, “my very own view is it is a little bit bit extra unsure than that,” Solomon mentioned.

“And you would need to count on that, given the acute disruptions related to the pandemic and the normalization,” Solomon added.

He added that whereas the “higher half of the economic system” within the US has been holding robust, some consumption segments are beginning to crack.

“I’ve talked to a bunch of CEOs that function companies that might have good perception into what I’ll name extra paycheck-to-paycheck sort of spending conduct,” Solomon mentioned.

“I feel that in the previous couple of months, you’ve seen a sample of these behaviors tightening up, which signifies that the decrease a part of the economic system is a little bit bit softer,” he mentioned.

Solomon is not the one one who sees uncertainties within the US economic system despite the fact that he thinks it is “working fairly properly” normally.

Ellen Zentner, Morgan Stanley’s chief US economist, mentioned on Monday that the US economic system may have a tough touchdown “sooner or later,” underscoring the tough economic system the Fed is maneuvering proper now.

Shopper costs rose greater than anticipated in January, which is able to make it more durable for the Fed to start out slicing charges.

“The longer the Fed stays within the hazard zone of higher-for-longer, the dangers of a crash or exhausting touchdown go up,” James McCann, the deputy chief economist at Abrdn, advised Enterprise Insider’s Phil Rosen final week.

“They’re so near pulling off this gentle touchdown, and there is an understanding that they cannot go away coverage too tight for too lengthy,” McCann added.