US Recession Is Very Likely, and The Fed Could Hike Rates Above 4.5%, Says Goldman Sachs’ CEO

David M. Solomon CEO of Goldman Sachs
David M. Solomon CEO of Goldman Sachs

The US economy will likely endure an extended slump, and the Federal Reserve may hike interest rates above 4.5%, Goldman Sachs CEO David Solomon has warned.

“There is no question that economic conditions are going to tighten meaningfully from here,” the bank chief said at the Future Investment Initiative in Saudi Arabia on Tuesday. “The US is most likely going to have a recession.”

Inflation skyrocketed to a 40-year high of 9.1% in June and remained above 8% in September. The Fed has tried to tame inflation by hiking rates from nearly zero in March to a range of 3% to 3.25% today.

The US central bank has signaled it will hike them to 4.5%, then halt to allow those increases to take full effect, Solomon said. Nonetheless, the Fed might not stop there if demand doesn’t delay and the labor market remains extremely tight, he added.

“If they don’t see real changes in behavior, my guess is they’ll go further,” he said. “Generally, when you find yourself in an economic scenario like this, where inflation is embedded, it’s very hard to get out of it without a real economic slowdown.”