Goldman’s CEO says there is a good likelihood of a recession, so it is time to be cautious

Goldman Sachs CEO David Solomon warned on Tuesday that the US economy could be headed for a downturn that could complicate investment and business decisions.

“I think it’s time to be cautious, and I think if you’re running a risk-based business, it’s time to think more cautiously about your risk box and your risk appetite,” Solomon said during a live interview on CNBC “Squawk box.”

“I think you have to expect more volatility to emerge now. That doesn’t mean with certainty that we have a really difficult economic scenario. But with the distribution of the results, there’s a good chance we have a recession in the United States,” he added.

Solomon spoke just minutes after Goldman released third-quarter results that beat analysts’ expectations for both earnings and revenue. This comes at an important time for the company as it prepares for another restructuring, this time merging the Wall Street giant’s four main businesses into three.

The company’s reorganization and streamlining of operations reflect “the development of that one Goldman Sachs ethos,” which he said will help the bank better serve customers.

“The fundamentals really don’t change,” Solomon said. “Leadership moves to different places, but it’s the same leadership.”

Regarding macroeconomic issues, Solomon repeatedly stressed the importance of caution, noting the tightening of financial conditions and the rise in inflation in recent months.

The Federal Reserve has been aggressively raising interest rates since March to calm inflation, which is at its highest level in more than 40 years. Markets have reacted strongly, with stocks falling and government bond yields rising.

“This environment heading into 2023 is one to be cautious and prepared for,” Solomon said.

His remarks arrived just days after his counterpart JPMorgan ChaseJamie Dimon, also warned of looming troubles for the US economy, saying higher inflation and interest rates and the war in Ukraine are threatening an economy that is currently doing well.

Like Dimon, Solomon said investors need to be aware of the challenges ahead.

“In an environment where inflation is more embedded and growth is slower, adding value to assets will be more difficult,” he said. “Are we going to be rooted in such a decades-old scenario? I dont know.”

He said public policies in areas like energy and immigration will be important in determining how well the US is able to meet its challenges.

“Can we find ways of doing things that allow us to invest in our society in a way that makes it easier to change that? I don’t have the answers to that, but I’ll certainly focus on that,” Solomon said. “If you’re a risk manager now, I think you have to brace yourself for a tougher environment in 2023.”