GOLDMAN CEO: US employment data is not terrible, the Fed does not need to cut interest rates in a hurry
AInvestTuesday, Aug 6, 2024 9:30 pm ET
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David Solomon, Goldman's chief executive, expects the Fed to avoid emergency rate cuts as he believes the economy is emerging from recession.

"I expect we won't see any progress before September. The economy is going to be fine, and we may not see a recession," he said in an interview.

Investors increased their bets that the Fed would act before its September meeting after a weak US jobs report last Friday, which showed the economy was weaker than expected, sent global markets tumbling. On Monday, derivatives markets showed a 60 per cent probability of a rate cut within a week.

While these bets now suggest investors believe there is little chance of a rate cut before September, they still expect the Fed to cut by 50 basis points at its two-day meeting ending on Thursday September 18.

Mr Solomon said: "Based on the economic data we are seeing and the signals from the Fed, I think there could be one or two rate cuts this fall."

The chief executive said the Bank of Japan's decision last week to raise borrowing costs in the country had shocked the market. The move forced many investors to unwind so-called carry trades, where they borrow cheaply in Japan and buy assets elsewhere that pay higher yields. Strategists at JPMorgan said that recent carry trades unwound in the yen still had further room to go, as the currency remains one of the most undervalued in the world.

Mr Solomon said many investors had been betting on a soft US landing, and some were now going against that bet after the jobs data last week.

"The jobs report was not terrible, it was just weaker than people expected," he said in the interview.

Recession probability

Mr Solomon had previously said markets were too optimistic about the Fed's rate cuts, and even in May he said the Fed might still choose not to cut rates this year, although he later softened his view. Goldman economists have raised their probability of a US recession next year from 15 per cent to 25 per cent.

The Goldman chief executive said the impact would last for some time as markets adjust to new economic data and revise their expectations of Fed policy.

"I do think that after the strong market performance we are seeing some adjustment, which may be healthy," he said. "I think we will see more volatility in the short term. It's a pretty big, meaningful re-pricing."

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