As the Federal Reserve attempts to tighten conditions in a highly inflationary climate, businesses and investors should be ready to witness a reduction in activity in the largest economy in the world, Goldman Sachs CEO David Solomon said on CNBC on Wednesday.
Solomon’s remarks coincided with a decline in US stocks following a 25% decline in retail powerhouse Target’s stock price as a result of a rise in costs that negatively impacted its earnings.
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According to Solomon, Goldman Sachs researchers believe there is a 30% possibility of a recession and increased interest rates over the next 12 to 24 months. About the Federal Reserve’s decision to raise interest rates to cool the raging inflation that hit 8.3% in April, he said, “What I would say when I’m advising clients is we’re going to tighten economic conditions.”
Solomon, who has been the CEO of Goldman Sachs since 2018, said, “You have to think about the idea that we definitely at some time – that there’s a reasonable risk at some point – that we have a recession or we have… very, very slow sluggish growth.”
“That doesn’t always mean that will happen. However, I do believe that if you’re in charge of a sizable business, you need to be looking through a lens with a little bit more caution now than you might have been a year ago.
According to Solomon, companies should assess their risk tolerance and make plans for how to deal with a slowdown. On the assumption that the Fed’s rapid and significant rate hikes will push the economy into a recession, investors have driven US stocks down this year.
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The Federal Reserve is considering the possibility of raising interest rates to more than 2% this year after increasing them by 75 basis points since March to a high benchmark rate of 1%. In 2022, the S&P 500 decreased by around 16%. Before the Federal Reserve started its most recent round of rate hikes, the first quarter of 2022’s gross domestic product shrank by 1.4%.
According to Goldman’s head, confidence among CEOs and consumers has considerably decreased, and M&A activity is not moving at the same rate as it was 12 to 18 months ago. However, he noted that “the amount of discussion within our organization with enterprises large and small is very, very vigorous.”
People are considering how to best position themselves competitively as “the economic landscape is changing considerably, and businesses that thought they would have easy access to financing are looking at executing on their plans,” he said.