Goldman Sachs CEO David Solomon on the economy, markets and the firm’s performance

Episode Summary

Executive Summary: David Solomon said the recession outlook has improved versus mid-2022, but inflation and tight labor markets remain the main macro risks, making a soft landing possible but not certain. He emphasized cautious CEO behavior, slow M&A, modest capital markets recovery, and Goldman’s strategic reset toward banking/markets, asset & wealth management, and fintech, while acknowledging challenges in 2022 and outlining the firm’s investor-day priorities.

Main Topics: Macro outlook: softer recession risk, but sticky inflation (Priority: 5/5): Solomon argued that fears of a severe 2023 recession have eased as the economy proved more resilient, though inflation remains stubborn and could keep rates higher for longer. CEO and business confidence amid uncertainty (Priority: 4/5): He said big-company CEOs are more cautious, paring capex and waiting for clearer visibility, with slow announced M&A serving as a proxy for subdued confidence. Small business resilience and strain (Priority: 3/5): Small businesses have rebounded from pandemic disruption but remain squeezed by inflation and wage pressure, with limited flexibility compared with larger firms. Labor market, layoffs, and monetary tightening (Priority: 4/5): Solomon described the labor market as very strong and said the Fed will likely need to stay aggressive to cool inflation, implying layoffs are still in the middle of the cycle rather than near an end. Green shoots in capital markets and M&A (Priority: 4/5): While activity was weak, he pointed to improving dialogue, shadow backlog, and some pickup in investment-grade and broader capital markets as market participants adjust to new valuation and funding realities. Goldman Sachs performance and organizational changes (Priority: 5/5): He explained 2022 results were hurt by weak capital markets, Russia markdowns, asset-management balance sheet drag, and consumer credit provisions, and said the firm reorganized to improve clarity, accountability, and growth. Energy transition, AI, and geopolitical risk (Priority: 5/5): Solomon framed climate transition as essential but long-term, requiring both fossil fuel financing and clean-tech investment, while also highlighting AI, biotech, cyber risk, and U.S.-China tensions as major forces shaping growth.

Key Arguments: The economy looks less likely to enter a deep recession than it did in mid-2022; a soft landing or shallow recession is now more plausible. Inflation remains the central macro problem, and Solomon expects it to be stickier than markets assume. A very tight labor market makes it harder for the Fed to bring inflation down, so the terminal rate may need to be higher than market pricing. CEO caution shows up in slower capex and weak announced M&A, indicating businesses are waiting for more clarity. Small businesses are resilient but uniquely vulnerable to inflation and wage pressures because they have less operating flexibility. Capital markets and M&A are lagging indicators; deal dialogue is improving even if transactions are still slow. Goldman’s 2022 weakness was driven by cyclical market conditions and specific headwinds, not a broken franchise. The firm’s new structure better aligns reporting with how businesses actually operate and should support growth, transparency, and investor understanding. The energy transition is necessary but will take decades, trillions in capital, and cooperation between governments, the private sector, and major global powers. AI, med tech, biotech, and cyber represent both economic opportunity and operational risk, requiring active adaptation by business leaders.

Data Points: Expected U.S. economic growth in 2023: 1.3% - Goldman Sachs economists’ baseline for a relatively soft landing Terminal rate (market view): Just over 5% - Current market expectation cited by Solomon Terminal rate (Solomon view): Higher than market’s just-over-5% view - He thinks rates need to go higher than implied by markets Inflation target difficulty: 2% to 2.5% - Level CEOs believe will be hard to reach again Potential inflation regime: 3% to 4% for an extended period - A scenario Solomon says companies are starting to contemplate Unemployment: Very low - Reason he believes the labor market is still too tight to easily cool inflation M&A volumes: Slowest start in about 20 years - Announced M&A volumes six weeks into the year Capital markets outlook timing: 4 to 6 quarters - Typical lag for firms to adjust to major market shifts World energy from fossil fuels: 81% - Share of global energy last year used to argue the transition will be lengthy Global emissions growth: 6% - Last year’s emissions increase, underscoring the scale of the challenge Goldman Sachs ROE 2021: Over 20% - Prior-year comparison for 2022 performance Goldman Sachs book value growth 2021: More than 20% - Prior-year comparison for 2022 performance Goldman Sachs ROE 2022: 10.2% - Full-year result Solomon called disappointing versus prior year but middling versus peers Russia markdown impact: Meaningful markdown; exact amount not specified - From the firm’s exposure in Russia after the Ukraine war began Asset management balance-sheet revenue swing: Almost $10 billion - Decline in revenue from that balance-sheet-intensive business versus 2021 Alternative assets raised over 3 years: $180 billion - Capital raised by Goldman’s asset management platform Asset management fee target: $10 billion - Firm target for 2024 Current asset management fees: $8.8 billion - Latest level cited as on track toward target

Pivotal Quotes: "the chance that we could muddle through with either a shallow recession or a soft landing certainly feels more likely" — David Solomon: His updated macro outlook compared with the more bearish view from mid-2022 "CEOs feel like the economic construct that we're going to operate in for a period of time is resetting" — David Solomon: Why business leaders are acting more cautiously "it's a transition. And Goldman Sachs is going to be financing fossil fuels for a long time. But Goldman Sachs is also going to be investing capital and giving advice and trying to raise capital to support acceleration of technologies that can really accelerate the transition" — David Solomon: His balanced view on the energy transition and the firm’s role

Implications: Businesses should plan for sticky inflation, higher-for-longer rates, and a more cautious deal environment while investing selectively in AI, clean tech, and resilience. For Goldman, the focus is execution on its reorganized platform and restoring investor confidence through growth and clearer reporting.