A recession in the United States is likely with the Federal Reserve maintaining its aggressive monetary policy tightening trajectory, according to Goldman Sachs CEO David Solomon and JPMorgan CEO Jamie Dimon.

Solomon said on a panel at the Future Initiative Investment conference in Riyadh, Saudi Arabia, that he expects economic conditions to “tighten meaningfully from here,” and that the Fed will keep raising interest rates until they reach 4.5 per cent-4.75 per cent before pausing.

“But if they don’t see real changes — labor is still very, very tight, they are obviously just playing with the demand side by tightening — but if they don’t see real changes in behavior, my guess is they will go further,” he said.

“And I think generally when you find yourself in an economic scenario like this where inflation is embedded, it is very hard to get out of it without a real economic slowdown.”

The Fed funds rate is currently targeted between 3% and 3.25%, but policymakers on the Federal Open Market Committee have indicated that additional hikes will be required, with US inflation remaining at 8.2% year on year in September.

Last week, Philadelphia Fed President Patrick Harker stated that the central bank’s policy tightening had resulted in a “frankly disappointing lack of progress on curtailing inflation,” projecting that rates would need to rise “well above 4 per cent” by the end of the year.

Meanwhile, the U.S. Department of Labor reported 10.1 million job openings in August, indicating that employers’ demand for workers remains historically high, despite a sharp decline.

Central bank policymakers hope that a cooling labor market will result in lower wage growth, which has been at its fastest in decades and indicates that inflation has become embedded in the economy.

“So I too am in the camp that we likely have a recession in the U.S. … I think most likely we might be in a recession in Europe, and so until you get to that point where you see a change — whether it’s in labor, the demand side — you are going to see central banks continue to move on that trajectory,” Solomon added.

The US economy shrank by 0.9% in the second quarter of 2022, the second consecutive quarterly decline and a strong indication that the country is in recession.

Fellow Wall Street titan Jamie Dimon agreed that the Fed would likely continue raising rates aggressively before pausing to allow data to reflect its efforts to rein in inflation, but he was equally pessimistic about economic growth.

“But American consumers, eventually the excess money they have is running out. That will probably happen sometime mid-year next year, and then we will know more about what is going on with oil and gas prices and that kind of thing, so we will find out,” Dimon said.

(Adapted from CNBC.com)