Goldman Sachs COO warns of 'mini stagflationary' scenario where sticky inflation eats away at economic growth

• Brace for a "mini stagflation" scenario where sticky inflation eats away at US economic growth, Goldman Sachs' COO said.
• "That's not going to be called a recession, but it's not going to feel great," John Waldron said at the Bloomberg Invest conference.

Goldman Sachs' chief operating officer has warned of a "mini stagflation" scenario where sticky inflation eats away at US economic growth.

"If you want to paint a more cautious picture, you would say we might have a mini stagflationary scenario. It might not be massive stagflation, but if you have sluggish growth and inflation doesn't really get down below 3% and rates have to stay 3 plus percent for a while, that's not going to be called a recession, but it's not going to feel great," John Waldron said during the Bloomberg Invest conference in New York on Thursday.

"That's the scenario we kind of plan for, and worry about, because that's a scenario that could persist for a while where you just get sluggish growth," he added.

Stagflation describes a situation of stagnant growth, high unemployment and high inflation.

According to Waldron, the US may dodge a recession but could face persistent price pressures. "When I talk to our clients, whether they're corporate clients or investing clients, the single biggest debate that I hear is how sticky will it be, and how much is the Fed the ECB going to have to do to get it down to its 2% target in US terms?" he said.

The US has been battling high inflation for over a year, forcing the Federal Reserve to take aggressive steps in a bid to cool price pressures down. In April, consumer prices rose 4.9% annually - the pace has decelerated significantly from the mid-2022 highs but still remains well above the central bank's goal.

Waldron added "the persistence of inflation in the system" on the supply side is what's being felt by the Wall Street bank's corporate clients.

"If you're running a company, you've got higher wage prices, higher supply prices, you've passed along that price pressure to your customers," he said, adding there's concern among companies about whether higher prices will impact margins.