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Interview, Fireside Chat

Goldman Sachs Chairman and CEO David Solomon on the business environment, AI, and private credit

Goldman SachsDavid Solomon, Allison Nathan
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Macroeconomic Environment and Policy Outlook

  • The current business environment is characterized as more constructive regarding regulation compared to the previous administration, though significant uncertainty persists due to pending policy implementation.
  • Primary areas of regulatory and policy uncertainty include immigration, trade, tax policy, and energy policy, all of which have implications for labor supply, inflation, and economic growth.
  • CEO optimism among business leaders stems from expectations of reduced regulatory burdens and a shift toward a more growth-oriented, collaborative agenda.
  • Concerns regarding inflation remain significant, driven by potential tariff impacts, immigration policy changes, and softening durable goods prices while services and food face headwinds.
  • Inflation and Interest Rates Forecast:
    • The Federal Reserve is expected to take no action at the immediate upcoming meeting.
    • The base case for 2025 assumes a narrow policy rate range, with potential for rate cuts depending on whether inflationary policy shifts alter the trajectory.
    • Market volatility in the bond market is attributed to unexpected shifts in rate expectations, requiring a meeting-by-meeting evaluation of data.

Capital Markets and Investment Trends

  • Capital markets activity has run below 10-year averages for the last few years following a period of pull-forward activity in 2020–2021.
  • A meaningful improvement in capital markets activity and M&A volume is forecast for 2025, driven by improved confidence and financial sponsors pulling back from the sidelines.
  • Goldman Sachs projects a return to 10-year average or better levels of capital markets activity in 2025, continuing the improvement seen in 2024.
  • Private Credit Strategy:
    • Goldman Sachs manages $140 billion in private credit, leveraging its position at the center of the public-private ecosystem to drive origination and distribution.
    • The firm's capital solutions business focuses on utilizing its origination engine to deploy capital for both investing and trading clients.
    • Secular growth in private credit lending is expected, with the firm uniquely positioned to facilitate this through its balance sheet and asset management franchises.

Geopolitical Risks and Global Growth

  • Three principal geopolitical hot spots identified by the CEO are US-China relations, the war in Ukraine, and instability in the Middle East.
  • US-China Relations: There is optimism that the new administration will re-strike the balance in the relationship, potentially yielding positive market and global outcomes.
  • Middle East: The President is viewed as having an opportunity to advance normalization and long-term stability, building on work from his first term.
  • Ukraine: Resolution is viewed as more complicated with no obvious path to progress, presenting a significant uncertainty.
  • Global Growth Dynamics: Global growth has been driven primarily by the US, with Europe and China showing weaker performance.
  • European Outlook: The CEO expresses caution regarding Europe, noting a lack of pressure on EU nations to create "national champions" or act aggressively enough to improve the bloc's competitiveness.

Regulatory Landscape and Capital Buffers

  • Significant progress in the financial regulatory environment depends on the rapid appointment of key officials, including the SEC Chair, Fed Vice Chair of Supervision, OCC Head, CFTC Head, and CFPB Head.
  • Uncertainty in Stress Testing: Ongoing litigation regarding CCAR (Comprehensive Capital Analysis and Review) and uncertainty around Basel III and GSIB (Global Systemically Important Banks) classifications are causing large banks to hold excess capital buffers.
  • Goldman Sachs advocates for clear regulatory policy to release excess capital, which would otherwise constrain investment, loans, and broader economic growth.

Artificial Intelligence and Productivity

  • Technology Trend: The CEO views AI as a genuine driver of productivity and efficiency, noting that the cost of compute is expected to fall or power to increase roughly every three months.
  • Short-Term Volatility: While short-term market noise and low-cost competition may cause volatility, the long-term trend of enterprise integration is considered robust.
  • Internal Implementation:
    • With 47,000 employees and 12,000 engineers, the firm is prioritizing engineering productivity to maximize output.
    • AI tools are being deployed to accelerate knowledge work, allowing highly productive workers to focus on high-value client interactions.
  • Adoption Philosophy: Businesses are advised to be "slow and prudent," focusing on specific use cases with measurable productivity gains while maintaining strong governance and risk management.

Strategic Priorities and Risk Management

  • Five-Year Strategy: The firm is executing on a strategic plan initiated five years ago, focusing on growing the asset and wealth management business while strengthening the core banking and markets franchise.
  • Growth Targets: Goldman Sachs aims to grow its asset and wealth management business in the high single digits, improving margins and returns to uplift overall firm performance.
  • Risk Perspective: The CEO maintains that the "glass is half full" regarding US preeminence in investment, technology, and capital formation, despite significant external risks.
  • Key Risks: Primary concerns include geopolitical instability, cyber threats, and the potential for market corrections (e.g., a 20% drop) if unforeseen events occur.
  • Forward-Looking Exercise: The firm engages in scenario planning to identify what could go wrong a year from now to better prepare for market volatility.

Event Details

  • The conversation between host Allison Nathan and CEO David Solomon took place on Monday, January 27, 2025.