Goldman Sachs CEO David Solomon warned on Tuesday that the US economy could be headed for a downturn that could complicate investment and business decisions.
“I think it’s time to be cautious, and I think if you’re running a risk-based business, it’s time to think more cautiously about your risk box and your risk appetite,” Solomon said during a live interview on CNBC “Squawk box.”
“I think you have to expect more volatility to emerge now. That doesn’t mean with certainty that we have a really difficult economic scenario. But with the distribution of the results, there’s a good chance we have a recession in the United States,” he added.
Solomon spoke just minutes after that company released third-quarter results that beat analysts’ expectations for both earnings and revenue. This report comes at an important time for the company as it prepares for yet another restructuring, this time consolidating the Wall Street giant’s four main businesses into three.
The company’s reorganization and streamlining of operations reflects “the development of that one Goldman Sachs ethos,” which he said will better serve banking service customers.
“The fundamentals really don’t change,” Solomon said. “Leadership moves to different places, but it’s the same leadership.”
Regarding macroeconomic issues, Solomon repeatedly stressed the importance of caution, noting the tightening of financial conditions and the rise in inflation in recent months.
The Federal Reserve has aggressively raised interest rates to calm inflation, which is at its highest level in more than 40 years. Markets have reacted strongly, with stocks falling and government bond yields rising.
“This environment heading into 2023 is one to be cautious and prepared for,” Solomon said.
His comments came just days after his JPMorgan Chase counterpart, Jamie Dimon, also warned of impending trouble for the US economy. He said higher inflation and interest rates, as well as the war in Ukraine, are threatening an economy that is currently doing well.
Like Dimon, Solomon said investors need to be aware of the challenges ahead.
“In an environment where inflation is more embedded and growth is slower, adding value to assets will be more difficult,” he said. “Are we going to be rooted in such a decades-old scenario? I dont know.”
He said public policies in areas like energy and immigration will be important in determining how well the US is able to meet its challenges.
“Can we find ways of doing things that allow us to invest in our society in a way that makes it easier to change that? I don’t have the answers to that, but I’ll certainly focus on that,” he said. “If you’re a risk manager now, I think you have to brace yourself for a tougher environment in 2023.”