Goldman Sachs CEO David Solomon threw cold water at expectations that the Federal Reserve will be able to execute a “soft landing” in its battle to tamp down inflation.
Solomon told a bankers’ conference in Miami on Tuesday that while “the world is set up for a soft landing,” there was a “higher level of uncertainty” because inflation continues to remain stubbornly above the Fed’s 2% target rate.
“The market is way weighted to a very soft landing. And when you look at the pattern of facts the last three or four years, it’s hard for me to see it’s going to be that simple,” Solomon said.
His comments were reported by Financial Times.
Solomon scoffed at the notion that the Fed would loosen monetary policy as quickly and intensively as has been predicted by some.
“When I was on TV in Davos a month ago, the consensus was for seven interest rate cuts and I said, ‘Gee, I just don’t understand this,’” Solomon said.
The market is now pricing in as few as three interest rate cuts this year — with the earliest not expected to come until May or June.
Solomon said that “upper half of the economy in the United States has been very strong” but also noted that consumer spending in the lower tier of the economy has slowed down.
Solomon’s counterpart at JPMorgan Chase, Jamie Dimon, told CNBC on Monday that he thinks there’s a better than 50% chance that the economy sinks into a recession.
“The market is kind of pricing in a soft landing. That may very well happen,” Dimon told CNBC on Monday.
“But the [market’s] odds are 70 to 80%. I’ll give you half that, that’s all.”
The bulk of policymakers at the Federal Reserve’s last meeting were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level, according to minutes of the Jan. 30-31 session.
“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained” to return inflation to the Fed’s 2% target, the minutes said.
Whereas “most participants noted the risks of moving too quickly to ease the stance of policy,” only “a couple … pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.”
Kansas City Federal Reserve Bank President Jeffrey Schmid on Monday used a debut speech on policy to signal that he remains focused on the threat of high inflation and is in no rush to cut interest rates.
“With inflation running above target, labor markets tight and demand showing considerable momentum, my own view is that there is no need to preemptively adjust the stance of policy,” Schmid said in his first extensive public remarks since he began the job last August.
“Instead, I believe that the best course of action is to be patient, continue to watch how the economy responds to the policy tightening that has occurred, and wait for convincing evidence that the inflation fight has been won.”
Schmid’s approach suggests a hawkish outlook in sync with recent Kansas City Fed presidents; indeed, he told the Economic Club of Oklahoma that both Esther George and Thomas Hoenig are “dear friends.”
This story originally appeared on NYPost
