Goldman Sachs Group Inc. Chief Executive Officer David Solomon predicted the Federal Reserve will avoid an emergency rate cut because he believes the U.S. economy is avoiding a recession.

“I don’t expect you’re going to see anything (rate cuts) before September, the economy is going to continue to grow, we probably won’t see a recession,” Solomon said in an interview to be aired on “The David Rubenstein Show: Peer to Peer Conversations.”

Investors have increased bets that Fed policymakers will act before their regularly scheduled September meeting as global stocks tumbled and jobs data on Friday showed the U.S. economy weakened more than expected. Derivatives markets at one point on Monday reflected a 60% chance of a Fed rate cut within a week.

The bets now show investors see less chance of a Fed rate cut before September, but they still expect a 50 basis point cut at the two-day FOMC meeting ending on Sept. 18.

“Based on the economic data that we’re seeing right now and the messaging from the Fed, I think it’s very likely that we’ll see one or two rate cuts in the fall,” Solomon said.

The CEO said markets were shaken by the Bank of Japan’s decision to raise interest rates last week. The move forced many investors to unwind their so-called carry trades, borrowing at low rates in Japan and buying higher-yielding assets elsewhere. That liquidation has more room to go, according to strategists at JPMorgan Chase & Co., because the yen remains undervalued.

According to Solomon, many investors had been expecting a soft landing for the U.S. economy, but after last week's jobs data, some investors began to hedge against that forecast.

“It wasn’t a terrible jobs report, it was just a little bit weaker than people were expecting,” Solomon said in an interview.

Solomon has previously said the market is too optimistic about the pace of rate cuts, and even suggested in May that the Fed might not cut rates at all this year, a view he later backed down. Goldman Sachs economists raised the probability of a U.S. recession next year to 25% from 15%.

Solomon, 62, said the market shock will last longer as markets readjust to new economic data and revised expectations about the Federal Reserve's future policy.

“I think we’re correcting after a pretty strong run up in the market, and that’s probably healthy,” Solomon said. “I think we’re going to see more volatility in the short term. This is a pretty big, pretty meaningful correction.”

The article is forwarded from: Jinshi Data