Goldman Sachs (GS) chief David Solomon said CEO optimism surrounding the current economic environment "has gotten a little better," but said inflation is still "hampering confidence."
"When I talk to CEOs, they feel more uncertain about the course of inflation as we run through 2023, 2024. ...There's a real belief that inflation will be stickier and harder to moderate than markets now predict," Solomon said during the company's second-ever investor day on Tuesday.
The executive's comments come as inflation picked up in the first month of the year with January's Consumer Price Index (CPI) showing a 0.5% increase in prices on a month-over-month basis, an acceleration from the prior reading.
Solomon said sticky inflation could lead to more aggressive monetary action, which has already taken a serious toll on the bank's operations.
Goldman saw profits sink 69% in Q4 amid a steep decline in deal-making revenues pressured by last year's rapid rise in interest rates and a resulting tightening of financial conditions.
Solomon, who noted capital markets thrived in 2021 before the Fed began hiking rates in March of last year, explained: "It’s not surprising that we're still in relatively sluggish capital markets," noting there's typically a "4 to 6 quarter lag before people reset their expectations."
Still, the executive revealed he's seen significant economic improvements over the past six months, reinforced by a resilient consumer and tight labor market as the unemployment rate hovers at 3.4%.
"The consensus of the CEO community in the summer was we're in for a very rough ride and chances of not hitting a recession were low," he said, adding that stance has now changed with the probability of a soft landing without a recession more likely.
Other bank CEOs have weighed in on the state of the economy in recent weeks, with a particular emphasis on inflation.
Most recently, JPMorgan Chase CEO Jamie Dimon told CNBC the Fed lost "a little bit of control of inflation," while Bank of America chief Brian Moynihan said "the broad trend is inflation peaking out" in an interview with Barron's.
The Fed has hiked interest rates by a cumulative 4.5% over the past year in an effort to quell inflation. Consumer prices peaked last summer, hitting a roughly 40-year high of 9.1%.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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