Solomon, Putting the Brakes on Excessive Expectations
"It is difficult to expect seven interest rate cuts in 2024 as the market anticipates. The market is moving too far ahead." David Solomon, CEO of Goldman Sachs, has put a brake on the excessive expectations of interest rate cuts in the financial market.
On the 17th (local time), Solomon CEO made these remarks in an interview with CNBC in Davos, Switzerland, where the World Economic Forum (WEF) annual meeting is being held. He said, "There is no doubt that we have made progress on inflation. The possibility of interest rate cuts is reasonable," but added, "Personally, I find the market's expectation of seven rate cuts this year difficult."
This aligns with the warning from Klaas Knot, President of the Dutch Central Bank, on the same day, who cautioned that the market's early rate cut expectations could act as 'self-destruction.' Currently, the financial market expects the Fed to start lowering rates as early as March and to implement 5 to 7 cuts by the end of the year.
Solomon CEO predicted, "Fed Chair Jerome Powell will monitor data and decide on rates based on the data." He assessed, "It is reasonable to see some degree of rate cuts and easing," adding, "It will depend on what the data shows and the economic situation this year."
Furthermore, he noted, "Many things are happening around the world," and did not rule out the possibility that rising geopolitical risks from the Middle East could trigger an inflation shock. On the same day, Amin Al-Nasser, CEO of Aramco, also warned in a foreign media interview that attacks by Houthi rebels on ships in the Red Sea could lead to suspension of oil tanker operations and shipment delays. This could be a direct blow not only to oil prices but also to supply chains.
Solomon CEO pointed out that "excluding geopolitical issues, the market environment has improved compared to a year ago," but highlighted the sharply increased U.S. debt problem. He said, "I am very concerned about the increase in debt," and assessed, "It may not occur in the next six months, but it is a major risk we need to manage and consider."
Meanwhile, on the same day, Jamie Dimon, CEO of JPMorgan Chase, warned of economic risks persisting in the financial and geopolitical sectors, saying, "Very strong forces will have repercussions in 2024 and 2025." He questioned, "Do we fully understand how Ukraine, terrorism in Israel and the Red Sea, and quantitative tightening will work?" and said, "If I were the government, I would prepare for what to do assuming the situation will not be good."
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