The U.S. economy is in a "fragile place," Goldman Sachs' chief executive said on Tuesday, with the incoming Donald Trump administration promising policies that could spur or constrain growth and exacerbate government deficits.
David Solomon said he was "very optimistic" and expected Trump's promised sweeping deregulation to spur business investment.
But he also warned of the potential impact of Trump's plans to crack down on immigration, including deporting millions of immigrants living in the United States illegally.
He said the recent rise in long-term interest rates - the 10-year Treasury yield hit 4.79% on Tuesday - mainly reflects market expectations for continued growth in U.S. government debt.
"I'm fairly optimistic, but we're in a more fragile position," Solomon told a New York conference hosted by the National Retail Federation, a trade association.
Solomon claims regulations implemented by Joe Biden's administration are causing CEOs to delay investments. The incoming Trump administration "has sent a clear message that they want to move away from this. It's very constructive for growth and investment, so I think that's a positive," he added.
He said extensions of tax cuts passed during Trump's first term in the White House, many of which are set to expire this year, "could be stimulating."
“But there are other things the administration is talking about that we really need to see how they pan out,” including Trump’s threats to impose new tariffs on trading partners and restrict immigration, Solomon said.
Solomon said secure borders are important. "But when you think about deportations, it's very, very important that we balance all of that with continued immigration growth, and we have to achieve that balance," he said.
"So you've got this mixture of changes, some of which are very constructive for growth, some of which have the potential to slow growth, and I think what we have to watch very carefully is how they balance out," Solomon said.
The government bond market has sold off in recent months, with interest rates surging further after an unexpectedly strong U.S. jobs report last week.
Solomon said he did not believe the recent rise in yields reflected expectations for a more hawkish Fed or concerns that strong inflation will persist.
"Our debt has definitely increased," he said. "You actually look at the deficit as a percentage of gross domestic product. You look at some of the policy decisions and I think it's very important that we really get control of our spending, our deficit and our debt levels. of."
He added: "I think one of the things that's happening is that the real bond buyers are looking and saying, we're going to get a lot of financing for the rest of this decade, and that's pushing up long-term interest rates. We've got a lot of I haven’t seen this change for a long time and I think it’s worth paying attention to.”