Goldman Sachs CEO David Solomon warns of persistent inflation

Goldman Sachs CEO David Solomon said the US economy is likely to avoid a significant recession, but warned inflation is likely to be more persistent than market participants currently expect.

“The chance of having a relatively soft landing and navigating through this has gone up very meaningfully over the last 12 months,” Solomon told Reuters in an interview. “The environment is definitely better.”

The Federal Reserve has tamed inflation via interest-rate increases, but it may need to take further action, he said.

“I have a personal point of view that inflation is going to be a little bit more sticky than the more optimistic views,” Solomon said. “There’s still work to do.”

The current trajectory of the US Treasurys’ forward curve shows rates declining in the future, but Solomon cautioned that might not materialize.

“You have to recognize it’s still very uncertain,” he said.

Fed funds futures traders largely show the Fed will keep rates on hold until May or June next year, when traders expect the central bank will start cutting rates.

Still, optimism that the US economy will avoid a recession is leading to a reopening of capital markets, Solomon said.

“You’re seeing now this month a bunch of significant IPOs in the market,” said Solomon, who noted that Goldman was involved in most of the initial public offerings. “They’re meaningful, they’re going well,” he said.

Arm, the chip designer owned by SoftBank Group, is close to raising about $5.4 billion in New York in what might be the biggest IPO of 2023. The IPO will price on Wednesday.

Mergers and acquisitions likely will be slower to resume because uncertainty weighs on companies making strategic decisions.

“People are starting to open up to a better environment and think a little bit more forward strategically, but there’s a lag time,” Solomon said.

Solomon criticized US proposals that would raise capital requirements for larger banks, echoing comments from his counterparts.

“I do think these capital rules will have an impact on economic growth and that will affect large businesses and small businesses and their access to capital,” Solomon said. “It’ll push some activity out of the banking system if they’re implemented.”

JPMorgan Chase CEO Jamie Dimon blasted the proposed rules, telling investors on Monday that they could prompt lenders to pull back and stymie economic growth.