Goldman Sachs and JPMorgan CEOs Are Tipping the U.S. Economy into Recession

David Solomon, CEO of Goldman Sachs, speaking at the World Economic Forum in Davos, Switzerland, January 23, 2020.

Adam Galacia | CNBC

Goldman Sachs CEO David Solomon and JP Morgan CEO Jamie Dimon both expects a recession in the United States as a tight labor market keeps the Federal Reserve on an aggressive course of monetary policy tightening.

Speaking on a panel at the Future Initiative Investment conference in Riyadh, Saudi Arabia on Tuesday, Solomon said he expects economic conditions to “tighten significantly from here.” and predicted the Fed would continue to raise interest rates until they hit 4.5%-4.75% before pausing.

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“But if they don’t see real changes – the workforce is still very, very tight, obviously they’re just playing with demand by tightening – but if they don’t see real changes in behavior, I guess they will go further,” he said.

“And I generally think that when you’re in an economic scenario like this where inflation is priced in, it’s very difficult to get out of it without a real economic downturn.”

The federal funds rate is currently targeted between 3% and 3.25%, but policymakers at the Federal Open Market Committee have signaled that further hikes will be needed, with US inflation still at 8.2% in September.

Philadelphia Fed President Patrick Harker said last week that the central bank’s policy tightening to date had resulted in a “frankly disappointing lack of progress in reducing inflation,” predicting that rates are expected to rise “well above 4%” by the end of the year. .

Goldman Sachs CEO says outlook looks uncertain

Meanwhile, the US Department of Labor reported 10.1 million job openings in August, signaling that employers’ demand for workers, though down sharply, remains historically high.

Central bank policymakers are hoping a cooling labor market will translate into weaker wage growth, which has hit its fastest pace in decades and signals that inflation has entrenched itself in the economy.

“So I’m also in the camp that we probably have a recession in the United States…I think we could most likely be in a recession in Europe, and so until you get to that point where you see a change – whether in labor, on the demand side – you are going to see central banks continue to follow this trajectory,” Solomon added.

Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing entitled Annual Oversight of the Nations Largest Banks, at the Hart Building on Thursday, September 22, 2022.

tom williams | CQ-Roll Call, Inc. | Getty Images

US GDP contracted 0.9% in the second quarter of 2022, its second consecutive quarterly decline and a strong signal that the economy is in recession.

Wall Street titan Dimon agreed the Fed would likely continue to hike rates aggressively before pausing to allow data to start reflecting its efforts to tame inflation, but struck an equally pessimistic about the outlook for economic growth.

“But American consumers, eventually, the excess money they have is running out. That will probably happen in the middle of next year, and we’ll know more about what’s going on with oil and gas prices and that stuff, then we’ll find out,” Dimon said.

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