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Key Words: Goldman Sachs CEO says recession is likely, with 35% chance of a soft landing

Goldman Sachs Group Inc. CEO David Solomon said Tuesday he’s mostly expecting a recession in the coming months, as interest-rate hikes and inflation continue to let the air out of what is now a relatively strong economy.

Asked about the viability of cryptocurrency after the bankruptcy of FTX, Solomon said he feels strongly about the positive potential of the underlying blockchain technology that enables digital transactions, but he did not voice any optimism around bitcoin or other cryptocurrencies.

“I find cryptocurrencies that people speculate on completely uninteresting,” he said.

While many companies and clients continue to do relatively well, he said the outlook for 2023, with its projected geopolitical uncertainty and interest-rate hikes by the Fed, is leaving Goldman Sachs
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and its clients much more cautious.

“It’s a natural phenomenon that you therefore have to trim,” Solomon said in his appearance at the Wall Street Journal’s CEO Council Summit in Washington, D.C. “We’re going through the process of thinking about how we’re going to do that. But for sure, you know, we’ll have to narrow our footprint a little bit.”

Goldman Sachs economists are currently forecasting 1.9% global growth in 2023, but 2024 remains less certain.

Asked about the potential for a soft landing, Solomon said he feels there’s roughly a 35% chance that the economy will remain in positive growth mode of about 1%, with inflation at roughly 4%.

“There’s a reasonable possibility we could navigate a scenario like that,” Solomon said. “But I also think there’s a, you know, a very, very reasonable possibility that we could have a recession.”

Nevertheless, central bankers have a ways to go reach the right balance between growth, inflation and interest rates.

“It’s uncertain and … anybody who tells you they know, they don’t know,” Solomon said. “One of the things I’ve learned over my nearly 40 years of doing this is markets are pretty smart. But that doesn’t always mean that at any moment in time that there are 100% right.”

Solomon said he doesn’t know if bitcoin will have any value in 10 years and that he’s focused on other aspects of digital currencies, such as speeding up institutional transactions.

Some companies specializing in innovation in institutional transactions “will be super successful,” he said, adding that he also sees opportunities for neo-banks and stablecoins.

Solomon said he doesn’t have an opinion on Elon Musk’s acquisition of Twitter but is interested in seeing what happens and whether the billionaire will make the company a more successful, viable and transparent place for public discourse.

“I’m watching the movie with all of you,” Solomon said about Twitter. “I’ve got my popcorn and my soda and I’m settling in. It’s a super interesting platform. It’ll be interesting to see if Elon gets it right.”

These were the latest in a series of comments by Solomon on the economy.

On the company’s quarterly conference call on Oct. 18, Solomon said the global economy continues to face “significant headwinds,” with high inflation and the most rapid interest-rate hikes in decades.

“Geopolitical instability and energy shocks are an ongoing concern and GDP-growth expectations are declining” in trends that accelerated toward the end of the quarter on Sept. 30, he said.

“Everywhere I go, macro themes dominate,” Solomon said on Oct. 18. “My conversations with CEOs, they tell me that they are rethinking business opportunities and would like to see more certainty before committing to longer-term plans. As we head into the fourth quarter, my sense is that the outlook will remain unsettled, though economic performance will vary by region, and also expect volatility to persist as markets continue to digest these factors.”

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