Executives at some of Wall Street’s biggest banks said the US economy was holding up better than corporate leaders had anticipated and that the mood was more optimistic than it was a few months ago.
The comments from top brass at Goldman Sachs, Bank of America and Wells Fargo reflect the growing belief that the Federal Reserve may achieve a so-called “soft landing” for the US economy in its battle to tame inflation while avoiding a recession.
“The consensus has shifted to be a little bit more dovish in the CEO community that we can navigate through this in the United States with a softer economic landing than what people would have expected six months ago,” Goldman chief executive David Solomon told an industry conference organised by Credit Suisse on Tuesday.
Solomon’s brighter view was echoed by BofA chief Brian Moynihan on Tuesday, who said profit margins at midsize companies were holding up “better than they thought” and that consumer spending, which accounts for about two-thirds of US economic activity, remained strong.
“If you look at the consumer, they keep spending money,” Moynihan told the BofA Securities financial services conference. “Those consumers have money. They’re employed, and they’re spending money and they have a lot of capacity to borrow.”
Wells Fargo chief financial officer Michael Santomassimo also said “spending data is still really healthy”.
The comments mark a shift in tone from late last year when top US bank executives, while highlighting a resilient consumer, issued wary outlooks for the global economy. Solomon said at the time that some of Goldman’s clients “sound extremely cautious”. But, at the midpoint of the current US earnings season, corporate America’s top leaders have been split on the chances of the country escaping a recession.
S&P Global’s risk appetite index, which surveys data from roughly 300 US equity market institutional investors, this week showed that risk appetite from investors remained negative but the degree of risk aversion had fallen to the lowest since November.
Despite his more optimistic tone, Solomon issued a caveat that inflation was “still sticky” and “it’s still uncertain exactly what the trajectory will be of tamping down inflation”.
“I think we’re in an environment where we’re probably going to have kind of more sluggish, slower growth for a period of time until we get a lot of this to rebalance,” Solomon said.
In its battle to reduce inflation, the Fed has lifted its main interest rate from near-zero to a target range between 4.5 per cent and 4.75 per cent in less than a year. This has fuelled concerns that the US economy could tip into a recession in 2023 and that unemployment will rise.
Recent data has indicated a surprising level of resilience in the labour market during the second half of 2022 and into the start of this year, raising hopes that the central bank may be able to bring down inflation and avoid a recession.
In a more bearish sign for the Fed’s ability to pull off a soft landing, new data on Tuesday showed the US consumer price index declined by less than economists anticipated.
Despite the numbers, JPMorgan Chase chief financial officer Jeremy Barnum told the Credit Suisse conference that the bank’s management expects “inflation will tend to come under control”.