Goldman CEO sees recession risk, ‘extremely punitive’ inflation

David Solomon

David Solomon

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NEW YORK (May 18): Goldman Sachs Group Inc Chief Executive Officer David Solomon said clients are preparing for slowing growth and a decline in asset prices — all as “extremely punitive” inflation creates a tax on the economy. 

“There’s a chance of recession,” he said in a telephone interview. While he added that he’s not overly concerned about that risk, Solomon cited at least a 30% chance of such an event in the next 12 to 24 months as calculated by his firm’s economists, led by Jan Hatzius. He’s watching closely for whether credit spreads begin to widen out more materially. 

Solomon’s comments come months after his top deputy, John Waldron, told a large investment client that the Federal Reserve hadn’t been acting swiftly enough to control inflation. This week, former Goldman Sachs CEO Lloyd Blankfein expressed similar unease about soaring prices.

“We have to get rid of inflation,” Solomon said Tuesday on the phone call. “Inflation is extremely punitive, especially on those that are living week to week, pay cheque to pay cheque. It’s a big, big tax on that part of society. I think it’s very, very important that we get it under control.” 

Clients of the Wall Street giant are recognizing that economic conditions are tightening, in a process that’s still quite orderly, he said. While declining stock prices are predictable, if the tumult spilled over into credit spreads, it would be “concerning”.

“We are seeing a tightening of monetary conditions,” he said. “What’s happening with asset prices given we’re entering an environment with much more restrictive monetary policy is not surprising.”