Inflation risks resurface as Wall Street executives grow increasingly skeptical about the prospects of Federal Reserve interest rate cuts

According to the Zhitong Finance APP, major CEOs on Wall Street see that the U.S. economy is facing persistent inflationary pressures, and they do not believe the Federal Reserve will cut interest rates twice more this year to continue easing policy.

In September, the Federal Reserve lowered the benchmark interest rate by 50 basis points, marking a turning point in its management of the U.S. economy and inflation outlook. In a report in late September, strategists from JP Morgan and Fitch Ratings predicted that there would be two more rate cuts by the end of 2024, and they expected this easing to continue into 2025.

According to the CME's FedWatch tool, the probability of a 25 basis point rate cut at the November meeting this week is 98%. Currently, the probability of another 25 basis point cut at the December meeting is 78%.

However, some CEOs seem skeptical. Speaking at the "Future Investment Initiative" economic conference held in Saudi Arabia last week, they expressed that the U.S. will face ongoing inflationary pressures due to the country's economic activities and the policies of two presidential candidates, which involve potential inflation-triggering developments and economic stimulation, such as public spending, localization of manufacturing, and tariffs.

During a panel discussion at the FII, several CEOs from major Wall Street firms, including Goldman Sachs, Carlyle, Morgan Stanley, Standard Chartered, and State Street, were asked whether they believed the Federal Reserve would cut rates twice more this year, but no one expressed certainty.

Jenny Johnson, President and CEO of Franklin Templeton, stated in an interview last Wednesday, "Honestly, I think inflation is more stubborn. Looking at the U.S. employment and wage reports, I think it's hard for inflation to drop to 2%." She pointed out that she believes there will only be one more rate cut this year.

"Remember a year ago when we were all here talking about a recession? Will there be a recession? No one is talking about a recession anymore."

Larry Fink of BlackRock also expects one rate cut before the end of 2024.

Fink stated in another panel discussion last week, "I think, fairly speaking, we will at least cut by 25 basis points, but that said, I do believe that latent inflation globally is more severe than ever."

He noted, "Our government and policies are more prone to causing inflation. Immigration—our onshore policies, all of this—no one is asking, 'What is the cost?' I want to say, historically, we are an economy driven more by consumers, and the cheapest products are the best and most advanced form of political propaganda."

According to data from the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) in the U.S. rose 2.4% in September compared to the same period last year, a key indicator of inflation. This figure is down from 2.5% in August, indicating a slowdown in price growth. The September reading is also the smallest annual reading since February 2021.

Last Friday, new data showed that U.S. job growth in October slowed to its lowest level since the end of 2020. However, the market largely ignored this bad news, as the non-farm payroll report indicated severe disruptions in climate and the labor market.

David Solomon, CEO of Goldman Sachs, stated that inflation will be more deeply embedded in the global economy than market participants currently predict, meaning that price increases may be stickier than commonly thought He stated, "This does not mean it will rise in a particularly ugly way, but I do believe that based on the policy actions taken, it could be more negative than the current market consensus."

Morgan Stanley CEO Ted Pick went further, stating last Tuesday that the days of loose monetary policy and zero interest rates are a thing of the past.

Pick said, "The end of financial repression, zero interest rates, and zero inflation is over. Interest rates will be higher and will face challenges around the world. The end of the 'end of history'—geopolitics is back and will be part of the challenges for the coming decades." He referenced Francis Fukuyama's famous 1992 book "The End of History and the Last Man," which argues that with the end of the Cold War, conflicts between nations and ideologies have become a thing of the past.

Apollo Global CEO Marc Rowan even questioned during a panel discussion on Tuesday why the Federal Reserve would lower interest rates when so much fiscal stimulus has supported a seemingly healthy U.S. economy. He mentioned the U.S. Inflation Reduction Act, the CHIPS and Science Act, and the increase in defense production.

He stated, "In the U.S., we are all talking about the good aspects. Returning to your point about interest rates, we have significantly raised interest rates, yet the stock market is at record highs, there is no unemployment, and capital markets can issue freely. Are we still stimulating the economy?"

He later added, "I am trying to remember why we would lower interest rates instead of trying to balance the bottom quartile."