Goldman Sachs CEO David Solomon thinks it may be a bit before hearty levels of inflation in the country subside, but he is hopeful they will within the next 24 months.
“I said this yesterday on my earnings call that inflation is deeply entrenched,” Solomon told Yahoo Finance Live at Goldman’s 10,000 Small Businesses Summit (video above). “But that doesn't mean that we can't — through appropriate monetary actions and different policy actions — get back to a better place where things are more in balance. But at the moment, inflation is a big issue.”
Solomon added that inflation is a “hard thing to crack,” but he is confident the Fed’s efforts to raise rates will get the situation under control. The Goldman leader thinks we could see a “flattening out” of inflation later this year and into 2023.
“I won't speculate or predict a specific move [in rates], but economic conditions need to get tighter to break the back of inflation,” Solomon said. ”And I think the Fed’s focused on it, and they're moving in a direction, and hopefully we'll start to see some balance in all of this as they move in that direction.”
Inflation expectations
Inflation remains the dominant topic in the boardrooms of corporate America as the economy faces the brink of a potential recession while consumers and businesses to cut back.
Eye-popping price increases for goods and services were littered throughout the latest consumer price index (CPI) report. The index for butter and margarine skyrocketed 26.3% in June; dental services costs increased 1.9% during the month, the fastest pace since 1995; and the food-at-home index rose 12.2%, the largest 12-month gain since April 1979.
The June producer price index (PPI), meanwhile, spiked 11.3% on surging energy costs.
On the heels of those reports, market expectations for the Fed's policy decision next week quickly shot higher in anticipation that the central bank would raise interest rates by 100 basis points instead of 75.
A couple of Fed officials, including St. Louis Fed chief James Bullard, tamped down talk of a 100 basis point rate increase, which had begun to pressure stock markets globally.
Goldman’s economists expect a 75 basis point rate hike — nothing to sneeze at, but not the sledgehammer some market watchers were anticipating.
"This softening of inflation expectations is one reason why we expect the FOMC will not accelerate the near-term hiking pace and will deliver a 75bp hike at the July FOMC meeting," Goldman Sachs Chief Economist Jan Hatzius wrote in a note to clients this week.