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Goldman Sachs is battening down the hatches as it braces for a wave of volatility resulting from disruptive policy changes in Washington.
“I would say, at the moment, we’re relatively defensively positioned,” the bank’s President and COO, John Waldron, said at a conference on Thursday. “We’ve got heavy liquidity. We’ve got significant capital buffers. And we’re running more muted risk in certain and important pockets in the firm.”
Trump’s tariffs and trade war pronouncements have roiled markets in recent weeks, exposing Wall Street to more stressors than many traders and dealmakers anticipated when the former New York businessman returned to power earlier this year.
On Thursday, Waldron said tariffs are just one piece of the puzzle — and no longer as concerning as they were when they were rolled out.
“We’re moving, as we said, towards more manageable tariff levels,” Waldron said, adding, “I think we’re likely to avoid a recession with this baseline set of facts.”
Even if the president’s tariff wars are quickly resolved, the barrage of seismic policy shifts will likely continue, he said.
“The Trump administration is definitely disrupting a lot of what would be the conventional wisdom of how US policymaking traditionally goes,” he said at the annual Bernstein Strategic Decisions conference in New York.
“You see first-order impacts right in front of you,” he said, referring to the tariffs. “The second- and third-order impacts take longer to work their way through markets. And so we’re watching carefully for the second- and third-order impacts, which is another reason why we run a little bit higher buffer and a little bit more cautiously in an environment like this.”
“So we’re going to learn a lot more, and it’s going to be volatile,” he said. “I think we’re just got to live with that volatility for some time.”
Waldron pointed to two cues that the firm is watching. The first, he said, is leverage in the public sector. Governments have much less wiggle room to inject stimulus into battered economies to maneuver out of tough fiscal positions, diminishing their ability to fend off economic shocks.
“I think coming out of COVID, the public sector stimulus from governments around the world to rejuvenate the economy was really, really important,” he said. “We’re starting to see some elements of that public sector leverage play through. There’s a lot less fiscal headroom in the world today than there was back when we were coming through COVID and a pretty peaceful environment.”
He also pointed to something the firm is terming “lowflation” — that is, its forecast that, because of tariffs, the US should ready itself for “short- to immediate-term slower growth” and “higher inflation.” He said Goldman’s research showed that the best case scenario for effective tariffs would be between 10% to 15%, still a significant uptick from pre-Trump administration levels.
In good news, Waldron said that US consumers had continued to exhibit “tremendous resilience” in the face of these headwinds, and that the firm’s pipeline of forthcoming transactions remained strong.
“Not surprisingly, the second quarter is not quite as strong from an activity level as the first quarter, given the macro environment we talked about at the beginning of this conversation,” he said, adding, “But in investment banking, our engagement levels are actually still very good despite the uncertainty and the volatility our pipelines remain quite strong.”
“When you have this kind of volatility,” he said, “you just fundamentally have a harder time prosecuting transactions that may be in your pipeline.”
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