| The Return of Stagflation? |
 | As 2022 continues to unfold, two major growth risks — the prospect of a Federal Reserve policy mistake and a sizeable disruption in the euro area’s energy flows — loom large against a backdrop of alarmingly high inflation. That's according to Goldman Sachs Research’s Allison Nathan — creator and editor of the firm’s Top of Mind report — who explores these risks with Eric Rosengren, former president of the Boston Fed, Jan Hatzius, head of Goldman Sachs Research and the firm’s chief economist, and Philipp Hildebrand, vice chairman at BlackRock.
Is the central bank behind the curve in addressing inflation? “The Fed is definitely behind the curve…[and] has a lot of room to catch up. If any mistake was made, it was not pivoting earlier,” says Rosengren. “The faster the Fed moves, the greater the risk,” he says. “And I would say that the risk of a monetary policy-induced recession is more elevated now than it has been in quite a long time.”
While GS expects a soft landing, the risk of a monetary policy-induced recession in the U.S. has risen. “Our baseline remains a soft landing, with the view that the significant increase in the funds rate that we expect should help slow growth to a roughly trend pace,” Hatzius says. “But the risk of a policy mistake has increased as the environment has become harder to predict. The magnitude of uncertainty around many of the shocks we're dealing with today is very large."
Stagflation risks, especially in the euro area, have grown sharply. "Stagflation risk is a real concern today,” Hildebrand says. “We are looking at a supply shock layered on top of a supply shock. And the nature of the new supply shock — centered on energy — suggests not only that inflation will move even higher and likely prove more persistent moving forward, but also that growth will take a hit." |
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| | NYC Will Be Most ‘Business Friendly City’ in World, Mayor Eric Adams says |
 | On the latest episode of Talks at GS, New York City Mayor Eric Adams discusses his plans to reopen the city, improve public safety and attract new business and talent. He spoke to Goldman Sachs CEO David Solomon about his legacy and how he hopes to set New York on the "right course."
On partnering with business executives to revitalize New York City: “What I’m saying to my business leaders, number one, we are going to become the most business friendly city on the globe. We have to stop being anti-business. And number two, I’m asking them for a covenant, I need their help to really bridge the gap [to help educate and develop young people in the city].”
On what he’ll achieve in his first 100 days in office: “We’re going to have some successes. We’re going to create a more business friendly environment. We’re going to do some great things around the foundation of education. We need mayoral accountability. We’re going to zero in on crime. You’re going to see a visual change in the unsafety feeling.” |
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| | How Long Will the Semiconductor Shortages Last? |
 | The shortage of semiconductor chips is straining global supply chains, causing a drag on the production of an array of products from smartphones to new cars. We spoke to Alexander Duval, a technology analyst in Goldman Sachs Research, after our virtual European Digital Economy Conference to discuss chip production and the impact of the Ukraine-Russia crisis on the sector. He highlighted how a number of European companies at the conference expect tightness in the supply and demand of semis to potentially persist in their particular product areas into early 2023, albeit with some gradual easing in certain types of chips in the second half of this year.
Based on your conversations at the recent technology conference, what did you hear about the backlog situation for European semiconductor producers and what is driving demand for their products?
Alexander Duval: Several companies highlighted very large backlogs for this year relative to what they can produce. The general view expressed was that new capacity would be needed for supply and demand to come into balance and that this could take some time. As far as the demand picture for these European semis producers is concerned, there are obviously certain industries that their products go into which are rebounding or seeing strong growth — automotive, for example, particularly given the limitation on what was produced during the initial innings of Covid-19. But more broadly across semis there are interesting secular demand drivers, whether we are talking about electrification of the car, the proliferation of the cloud, right through to other areas where semis have become a digital enabler of things like automated driving. And then of course the transition to 5G, as Europe and other economies digitalise, requires a lot of wireless equipment that in turn drives volumes of advanced semis.
What does this all mean for the supply chain crunch?
Alexander Duval: For now, demand as far as we can see remains good across all those areas I mentioned, though there is a lot of uncertainty on the broader macro picture. In order for the tightness to ease you either need demand in many of these areas to go down rather rapidly or you would need to see a significant amount of supply to come on stream, assuming of course that the level of double ordering is not significantly greater than these European semis companies believe to be the case.
To learn more about the shortage in semiconductor chips, read the full interview. |
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|  | What's the latest? Goldman Sachs Research predicted 2022 would be a watershed year for ESG-related regulation and Monday’s landmark proposal from the U.S. Securities and Exchanges Commission (SEC) only reinforced that. The SEC is considering introducing a rule that would require companies in the U.S. to report on a variety of climate-related metrics and qualitative disclosures, including greenhouse gas emissions. As proposed, the rule could become one of the broadest ESG data disclosure mandates ever introduced to corporations across the U.S. The SEC, under Chair Gary Gensler, is aiming to increase the transparency around what companies are doing to address climate change.
What's up next? The proposal kicks off a 60-day public comment period during which market participants of every sort can offer feedback to the SEC. Though the latest proposals broadly resemble regulatory trends in other regions, legal challenges are expected in the U.S. But the SEC has even more plans for the future: The commission has forecast further corporate disclosure requirements around human capital and political spending as well as increased process disclosures for funds labeling themselves as sustainable or ESG. |
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