The chief executive officers of Goldman Sachs and JPMorgan Chase have warned that the United States may be on the verge of a recession, with inflation certain to worsen.
Tuesday at a conference in Saudi Arabia, the financial titans offered an ominous image of the future.
David Solomon of Goldman Sachs stated that he expects economic circumstances to “tighten significantly from here” and that the Fed would continue to raise interest rates until they reach 4.5-4.75 percent, at which point it will pause and review.
Currently, the Fed rate – the interest rate at which banks and credit unions borrow from and lend to one another – ranges between 3% and 3.25%.
Many economists believe that the Federal Reserve will raise interest rates by 75 basis points at its next meeting on November 2 in an effort to slow the economy and reduce inflation. The Consumer Price Index for September indicated an inflation rate of 8.2%.
Given the robust job market, Solomon stated at the Future Initiative Investment conference in Riyadh that the Fed may go even higher.
September’s unemployment rate of 3.5 percent was matched for the lowest since late 1969.
‘If they don’t see real changes in behavior — labor is still extremely tight, so they are obviously just playing with the demand side by tightening — but if they don’t see real changes in behavior, they will likely tighten further,’ he said.
And I believe that, in general, it is very difficult to escape an economic scenario where inflation is embedded without a significant economic slowdown.
He continued, “The United States will undoubtedly have a recession.”
The 60-year-old stated that he felt a’reversal’ of 40 years of policies characterized by low interest rates and inexpensive borrowing.
He stated, “We are currently in the process of unwinding a multidecade period, and this has consequences.”
There are no simple solutions. There is no magic bullet.
He concurred that the Fed will likely continue quickly raising interest rates before pausing to enable their efforts to take effect and stated that the impact would be significant.
“American consumers will eventually exhaust their excess funds,” he remarked.
This will likely occur around the middle of next year, at which point we will have a better understanding of what is happening with oil and gas pricing and similar matters.
However, Dimon stressed that he was more concerned about ‘geopolitics’ than the impending financial storms.
‘There is currently very good news in the United States – people can see it, consumers and businesses are still spending, they have enough of money, and there is fiscal stimulus.
But there is a lot of terrible news on the horizon that may – not necessarily, but could – cause a recession in the United States.
“This is not the most significant aspect of our thoughts. We’ll easily overcome this obstacle.
I would be significantly more concerned about the geopolitics of the world today.
CNN moderator Richard Quest, who presided over the 10-person panel, inquired as to what Dimon meant by “geopolitical threat.” Dimon responded, “I believe the most significant issue is Russia-Ukraine, America-China, and the ties of the Western World.”
This would cause me significantly more concern than a mild or moderate recession.