Goldman Sachs Cuts Risk Exposure Amid Tariff Uncertainties, Warns of Slowflation

Goldman Sachs has taken a significant step in response to the economic uncertainties brought about by the Trump administration's tariff policies and the looming 100 billion yuan deficit. The firm has initiated its risk control mechanism, proactively reducing its risk exposure and accumulating liquidity reserves. This move is a clear indication of the firm's cautious approach to navigating the current economic landscape.

John Waldron, the CEO of Goldman Sachs, has warned that the U.S. economy is on the brink of a "slowflation" trap, characterized by slowing growth and rising inflation. He predicts a growth rate of 1% to 1.5% coupled with a 3% inflation rate. However, Waldron does not anticipate a severe economic recession, describing the situation as milder compared to the high inflation and economic stagnation experienced in the 1970s.

Despite benefiting from increased stock and bond trading revenues in the first quarter of this year due to market volatility caused by Trump's tariff threats, Goldman Sachs and other Wall Street banks are now facing challenges. Policy uncertainties have begun to hinder investment banking activities, with companies delaying investment and merger and acquisition plans. This has led to a decrease in revenue from merger and acquisition consulting and stock issuance fees.

Waldron has joined other financial giants, including Jamie Dimon of JPMorgan Chase and Larry Fink of BlackRock, in warning about the unsustainable trajectory of U.S. deficit spending. He emphasized the urgent need to reduce the deficit, stating that the current pace is unsustainable in the foreseeable future. In response to concerns about tariffs and deficits, Waldron revealed that Goldman Sachs' clients are seeking to reduce their over-allocation to U.S. assets and hedge their dollar exposure.

Waldron cautioned that while the current changes in asset allocation are marginal, more significant shifts could occur if the destructive policies persist. This proactive approach by Goldman Sachs reflects a broader trend among large institutional investors who are also seeking to exit the U.S. market. The firm's decision to tighten its risk controls and build up liquidity reserves is seen as a proactive measure to safeguard against potential economic downturns and market volatility.