Goldman Sachs CEO: Doesn’t see 1970-80s interest rates
Interest rates soared to 19% in the 1980s
Quick change in monetary policy has sent 'a shock' to markets: David Solomon
Goldman Sachs CEO David Solomon weighs in on the Israel-Hamas conflict, a 'fragile' economy and the Federal Reserve's next rate steps.
As the Federal Reserve prepares to make another decision on interest rates, market participants are in tune with the recent mandate telegraphed by policymakers to keep rates higher for longer.
The 10-year Treasury yield is already hovering near 5%, a 16-year-high. Mortgage rates for a 30-year fixed are nearing 8%, new car loans are at 7.4% and used cars at 11.4%, as tracked by Edmunds.com.
10-year Treasury yield hovers near 5%
Many are wondering how much higher rates may go and whether we could see levels like we had in the 1970s-80s, when the Federal Funds rate hit nearly 13% in 1974 and 19% in the 1980s, according to Federal Reserve data.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GS | THE GOLDMAN SACHS GROUP INC. | 602.79 | +6.74 | +1.13% |
In a FOX Business Network exclusive interview with Goldman Sachs CEO David Solomon, he downplayed that likelihood.
"I graduated from high school in 1980. So I, I remember those days. Well, I don't think we're going back to that. I don't think that's likely. But I do think that we are going to live in what's a more normalized environment and not an environment where money is free," he said during an appearance on FOX Business' "Cavuto: Coast to Coast."
MORTGAGE RATES JUMP AGAIN, NEARING 8%
The more normalized referenced by Solomon is likely where rates are right now, between 5.25-5.50%, he added.
"I think there is a risk that rates could go higher. I do think inflation is going to be sticky. It's particularly present at the moment around labor. And so that has to have an effect that plays through," Solomon added, noting the Fed is currently "data dependent."
Labor costs are rising with the UPS Teamsters recently securing a new five-year contract worth around $30 billion. This as the UAW is hammering out new contracts with Ford and Stellantis, while negotiations with GM remain in progress.
Workers picket the Ford Assembly plant as the UAW strike against the Big Three U.S. automakers continues on Oct. 10, 2023, in Chicago. (Scott Olson / Getty Images)
PHARMACISTS WALKING OFF THE JOB IN DROVES
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| UPS | UNITED PARCEL SERVICE INC. | 134.82 | +3.45 | +2.63% |
| F | FORD MOTOR CO. | 11.18 | +0.38 | +3.47% |
| STLA | STELLANTIS NV | 13.04 | +0.20 | +1.52% |
| GM | GENERAL MOTORS CO. | 58.53 | +2.85 | +5.12% |
Federal Reserve Chairman Jerome Powell speaks during a meeting of the Economic Club of New York in New York City, on Oct. 19, 2023. (Brendan McDermid / Reuters Photos)
The Fed, on Wednesday, is expected to leave rates unchanged but likely leaving the door open for one more rate hike at the December meeting.
Despite another likely rate hike, Solomon noted the U.S. economy can hold its own.
"I think one of the great tailwinds we have as an economy is most Americans who own homes put themselves in long-dated mortgages that have fundamentally low rates locked in for a long time" he noted.
As the Fed was cutting rates, many Americans had the opportunity to lock in a 30-year fixed mortgage rate or refinance as low as 2.68% in 2020.