Goldman Sachs Group Inc. Chief Executive Officer David Solomon said softer spending by consumers calls into question expectations that the US economy will avoid a recession.
“The world is set up for a soft landing,” Solomon said at a UBS Group AG conference on Tuesday. “The market certainly perceives there’s a very, very high delta to a soft landing. My own view is it’s a little bit more uncertain than that.”
Solomon said business chiefs have told him that, with prices still high, a pattern of tightening in “paycheck-to-paycheck” spending behaviors has emerged.
“I just think we’re operating pretty well, but just with a higher level of uncertainty than the market is pricing in,” he said.
Interest rates in 2022 and 2023 rose at the fastest pace in four decades as the central bank sought to contain surging inflation. Now, with price pressures easing and the economy still robust, Federal Reserve officials are prepared to bring rates down at a slower and potentially less regular pace. Investors had wagered that the slowing of inflation would lead to speedier cuts.
“Investors will keep repositioning in a slower economy,” Solomon said. “Investors are repositioning a bunch right now because two minutes ago it was seven interest rate cuts, now it’s four interest rate cuts — so the velocity of activity is still pretty good.”
Still, Solomon said one place activity has been slow is in investment banking — where activity has been “super, super anemic,” though is improving.
“I think we’re going to see a better operating environment for our core business,” he said. “That doesn’t mean every quarter, every minute, but I think we’ve seen it already from kind of the lows in the first half of 2023.”
One area where Solomon sees opportunity is in private credit, he said.
“We feel we’re a scaled player at $130 billion,” he said. “But candidly, given when we started — and we’ve been more of an institutional event fundraiser for the last 20 years — we should have $300 billion of private credit.”
The firm plans to raise its ninth large-scale private equity fund this year, he added.