Source: Wall Street News
Solomon recently stated that it currently does not expect the Federal Reserve to cut interest rates this year because US government spending proves that the country's economy is more resilient. Furthermore, investment in artificial intelligence infrastructure has helped the US economy to be more resilient in the face of the Federal Reserve's monetary tightening policies. Solomon's judgment on the interest rate path was similar to Daimon, CEO of J.P. Morgan Chase, who was another super heavyweight on Wall Street earlier this week.
On Wednesday local time, Goldman Sachs Group CEO David Solomon made an astonishing statement. He said that he currently does not expect the Federal Reserve to cut interest rates this year because US government spending proves that the country's economy is more flexible. “I still haven't seen convincing data indicating we're going to cut interest rates here. My current forecast is zero interest rate cuts.”
Furthermore, Solomon believes that investment in artificial intelligence infrastructure will also help the US economy to be more resilient in the face of the Federal Reserve's monetary tightening policy.
Solomon previously warned in March that US inflation may be more stubborn than expected by the market. His latest forecast on how many times the Federal Reserve will cut interest rates echoes this view.
However, Solomon also pointed out that consumers are already feeling the pressure of rising prices. Recent earnings reports from McDonald's and AutoZone suggest that consumers are starting to curb spending:
If you talk to CEOs who run businesses that actually involve the middle class of the US economy, these companies are already beginning to see changes in consumer behavior. Inflation isn't just nominal; it's cumulative, so everything is getting more expensive. You're starting to see how the average American consumer feels about it.
Compared to six months ago, changes in consumer behavior have increased the risk of a “real and obvious” economic slowdown.
Solomon also mentioned geopolitical fragility and said this is an issue people will face for a long time.
Earlier this month, Solomon said the US economy is running quite well. Therefore, as can be seen compared to its latest comments on the state of the US economy, today's speech was slightly pessimistic.
Goldman Sachs's team of economists said in April that they expect the Federal Reserve to cut interest rates only twice this year. The first rate cut will be in July, and the second rate cut will be in November. This is a correction to their earlier predictions, reflecting the general difficulty of Wall Street analysts in predicting the Federal Reserve's policy path after experiencing the first major wave of inflation in 40 years.
Solomon also discussed the value of returning to pre-pandemic office work habits, particularly for younger employees who are still studying the business. He said that about half of the company's employees are in their 20s, and they came to the company for a clear purpose — to learn from others. When they're not together, this way of learning won't be the same.
Although many American business leaders have made public statements on social and political issues in recent years, Solomon said he doesn't see this as part of his job as CEO of Goldman Sachs. “It's getting more complicated. You can pick any question; Goldman Sachs has a lot of people on either side.”
It is worth mentioning that Solomon's latest speech was only a short time until the Federal Reserve released the minutes of the meeting. The market has reacted first, and US stocks have declined markedly. The impact of Solomon's speech was no less powerful than the Federal Reserve minutes.
The minutes of the US Federal Reserve meeting released later showed that officials believed that it would take more time than they had anticipated before to be more confident that inflation would continue to fall to the Federal Reserve's target. Although monetary policy is restrictive, many people are still uncertain about the extent of the restrictions.
Solomon's judgment on the interest rate path was similar to Daimon, CEO of J.P. Morgan Chase, who was another super heavyweight on Wall Street earlier this week. Dimon believes that US inflation is worse than expected by the market. The inflation rate may reach 4% next year, but no one can do anything, and interest rates may surprise people. “We don't bet on the future, even though I don't trust the central bank's benchmark predictions at all.”
Dimon also stressed that J.P. Morgan Chase will not buy back a large number of shares at the current price; the repurchase will come into effect when the stock price falls back. He expects the market to panic again. This is probably why he kept the buyback until that day. Dimon's speech triggered a sharp drop in J.P. Morgan's stock price on the same day.
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