Goldman Sachs CEO David Solomon isn't so sure the US is on track to avoid a recession

Goldman Sachs chairman and CEO David Solomon. AP Photo/Patrick Semansky

• The US economy appears strong and inflation has cooled from its highs in 2022.
• This is spurring hopes that the US will be able to avoid a recession.
• However, Goldman Sachs CEO David Solomon said he thinks “it’s a little more uncertain than that.”

The US economy appears really robust — GDP grew 3.3% in the fourth quarter, the job market is strong, and stock markets are on fire.

To top that off, inflation has cooled from the highs of 2022 — even if it’s still above the Federal Reserve’s 2% target — after the Fed hiked rates relentlessly from March 2022 to July 2023.

This scenario is raising hopes that the Fed will be able to achieve a “soft landing” where the economy cools enough to bring inflation down without falling into a recession.

However, David Solomon, the CEO of Goldman Sachs, said at a UBS conference on Tuesday that we shouldn’t be too optimistic.

“The world is set up for a soft landing,” said Solomon. The markets are pricing in a high probability of it too, he added.

However, “my own view is it’s a little bit more uncertain than that,” Solomon said.

“And you would have to expect that, given the extreme disruptions associated with the pandemic and the normalization,” Solomon added.

He added that while the “upper half of the economy” in the US has been holding strong, some consumption segments are starting to crack.

“I’ve talked to a bunch of CEOs that operate businesses that would have good insight into what I’ll call more paycheck-to-paycheck kind of spending behavior,” Solomon said.

“I think that in the last few months, you’ve seen a pattern of those behaviors tightening up, which means that the lower part of the economy is a little bit softer,” he said.

Solomon isn’t the only one who sees uncertainties in the US economy even though he thinks it’s “operating pretty well” in general.

Ellen Zentner, Morgan Stanley’s chief US economist, said on Monday that the US economy will have a hard landing “at some point,” underscoring the tricky economy the Fed is maneuvering right now.

Consumer prices rose more than expected in January, which will make it harder for the Fed to start cutting rates.

“The longer the Fed stays in the danger zone of higher-for-longer, the risks of a crash or hard landing go up,” James McCann, the deputy chief economist at Abrdn, told Business Insider’s Phil Rosen last week.

“They are so close to pulling off this soft landing, and there’s an understanding that they can’t leave policy too tight for too long,” McCann added.