Goldman Sachs CEO sees 'good chance' of US recession in 2023

Goldman Sachs CEO David Solomon warned on Tuesday there is a "good chance" the U.S. economy tumbles into a recession hours after the bank confirmed a broad reshuffling in how it is organized.

Solomon delivered the grim prediction shortly after the Wall Street firm delivered third-quarter earnings results that showed profit fell 43% – better than analysts expected – and announced one of the largest overhauls in its history as a company. 

"I think you have to expect that there’s more volatility on the horizon now," Solomon said during an interview on CNBC. "That doesn’t mean for sure that we have a really difficult economic scenario. But on the distribution of outcomes, there’s a good chance that we have a recession in the United States."

Given the economic uncertainty as a wave of crises including stubbornly high inflation and an increasingly aggressive Federal Reserve converge, Solomon said that it's a "time to be cautious."

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"I think that if you’re running a risk-based business, it’s a time to think more cautiously about your risk box, your risk appetite," he said. 

While the banking executive is preparing for the likelihood of a downturn, he was more ambivalent about the possibility of a deep recession that could last for years rather than months. He indicated that government policy will play a major role in how long the downturn lasts.

"In an environment where inflation is more embedded and growth is slower, asset appreciation will be tougher," Solomon said. "Are we going to get rooted in that kind of a decade-long scenario? I don’t know. The policy decisions we make from here will have an impact."

Solomon is the latest in a chorus of Wall Street CEOs who are warning about a looming recession. 

JPMorgan Chase CEO Jamie Dimon last week said the U.S. is likely headed for a recession within the next six to nine months as a result of steeper interest rates and the war in Ukraine. 

"These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now," Dimon said during an interview with CNBC last Monday. 

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He warned the S&P 500 could tumble another 20% as a result of such a downturn. 

There is a growing expectation on Wall Street that the Fed will trigger an economic downturn after it embarked on one of the fastest courses in history to raise borrowing costs and slow the economy.

Officials in September approved a third consecutive 75-basis-point rate hike, lifting the federal funds rate to a range of 3% to 3.25% – near restrictive levels – and indicated that more super-sized increases are coming.

Economic growth already contracted in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a nation – shrinking by 1.6% in the winter and 0.6% in the spring, signaling the start of a technical recession. 

Fed Chair Jerome Powell has all but conceded the central bank will tip the economy into a recession with its rapid rate hikes, warning that higher rates will cause economic "pain."

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"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer," Powell told reporters in Washington in September. "Nonetheless, we’re committed to getting inflation back down to 2%. We think a failure to restore price stability would mean far greater pain."