Executives at some of Wall Street’s biggest banks said the U.S. economy remained better than corporate leaders had anticipated and the mood was more optimistic than in recent months.
Comments from top brass at Goldman Sachs, Bank of America and Wells Fargo reflect growing confidence that the Federal Reserve can achieve a so-called “soft landing” for the US economy in its fight to tame inflation while avoiding a recession.
“The consensus has shifted to be more dovish in the CEO community that the United States has a softer economic landing than people expected six months ago,” Goldman chief executive David Solomon told the industry. a conference organized by Credit Suisse on Friday.
Solomon’s brighter outlook was echoed by BofA chief Brian Moynihan on Tuesday, who said profits at midsize companies remained “better than expected” and that consumer spending, which accounts for about two-thirds of US economic activity, remained strong.
“When you look at consumers, they continue to spend money,” Moynihan said at the BofA Securities financial services conference. “The consumer has money. They work, and spend money and have the capacity to borrow.
Wells Fargo’s chief financial officer Michael Santomassimo also said that “spending data is still healthy”.
The comments marked a change in tone from late last year when top US bank executives, while highlighting resilient consumers, issued a cautious outlook for the global economy. Solomon said at the time that some of Goldman’s clients “sound very cautious”. However, in the midst of the current US earnings season, corporate America’s top leaders are divided over the country’s chances of escaping recession.
The S&P Global risk appetite index, which examines data from about 300 US equity market institutional investors, this week showed that risk appetite from investors remained negative but the level of risk aversion had fallen to its lowest level since November.
Despite sounding more optimistic, Solomon issued a caveat that inflation “is still close” and “it is still uncertain exactly what the trajectory will be tamping down inflation”.
“I think we’re in an environment where we’re probably going to have a kind of more sluggish, slower growth for a period of time until we get a lot of this to rebalance,” said Solomon.
In the fight to reduce inflation, the Fed has raised its key interest rate from near-zero to a target range of between 4.5 percent and 4.75 percent in less than a year. This has led to concerns that the US economy could be in recession in 2023 and unemployment will rise.
New data shows a surprising level of resilience in the labor market during the second half of 2022 and at the beginning of this year, raising hopes that the central bank can reduce 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 less than economists had anticipated.
Despite the numbers, JPMorgan Chase’s chief financial officer, Jeremy Barnum, told a Credit Suisse conference that the bank’s management expects “inflation to be manageable”.