Goldman Sachs CEO David Solomon tempered expectations regarding the Federal Reserve’s ability to achieve a “soft landing” in its efforts to curb inflation. Speaking at a bankers’ conference in Miami on Tuesday, Solomon acknowledged that although “the world is set up for a soft landing,” there is a heightened level of uncertainty due to inflation persistently exceeding the Fed’s 2% target rate.
Solomon emphasized that the market’s expectations heavily lean towards a smooth transition, but he expressed skepticism about the simplicity of such an outcome given the recent trend of events over the past few years. He indicated that the complexity of the situation suggests that achieving a soft landing may not be as straightforward as anticipated.
Dimon, speaking to CNBC, pointed out that while the market appears to be pricing in a smooth transition, he holds a more cautious view. He suggested that the probabilities the market is assigning to a soft landing are higher than he believes they should be, estimating them to be around 70 to 80%. However, he personally sees these odds as significantly lower, at roughly half of the market’s expectations.
The minutes from the Federal Reserve’s recent meeting shed light on policymakers’ concerns regarding the potential consequences of premature interest rate cuts. The majority expressed apprehension about the uncertainty surrounding the appropriate duration of maintaining a restrictive monetary policy stance in order to steer inflation back towards the Fed’s 2% target.
In contrast to market expectations, Kansas City Federal Reserve Bank President Jeffrey Schmid advocated for a prudent and patient approach to monetary policy adjustments. In his debut speech on policy, Schmid emphasized the necessity of closely monitoring economic indicators and waiting for clear evidence that inflationary pressures have been effectively mitigated before considering any policy shifts. His cautious stance aligns with a more hawkish outlook, reminiscent of his predecessors Esther George and Thomas Hoenig, both of whom he regards as “dear friends.”
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