"New King of Hedge Funds" Griffin: If the Federal Reserve cuts interest rates too quickly, its reputation may be damaged.
Ken Griffin, the founder of the well-known hedge fund Citadel, said on Tuesday that he expects the Federal Reserve to refrain from further interest rate hikes. However, he also warned that if the Fed cuts rates too early, it may undermine the credibility of its commitment to the 2% inflation target. Griffin expressed surprise at the sharp drop in US bond yields on Tuesday and believes that the US fiscal policy is unlikely to tighten significantly next year. He still predicts a recession in the US in the second quarter of next year.
Renowned hedge fund Citadel founder Ken Griffin, known as the "new king of hedge funds," said on Tuesday that he expects the Federal Reserve to not raise interest rates again, but if they cut rates too quickly, their reputation may be damaged. "The Fed needs to convey the message that they will put the inflation genie back in the bottle. If they cut rates too early, I believe they may lose credibility in their commitment to the 2% inflation target."
On Tuesday, the US October CPI data showed that inflation cooled more than expected, and it also fell significantly from September. Traders have almost completely ruled out the possibility of the Fed raising interest rates again. Swap contracts show that the first rate cut of 25 basis points by the Fed is expected to occur in June next year, previously expected in July.
After the release of the latest inflation data in the United States, US bond yields plummeted. The 2-10 year US Treasury yield fell by at least 20 basis points. Among them, the yield on the 10-year benchmark US Treasury bond fell by 20.63 basis points to 4.4337%, and the yield on the 2-year US Treasury bond fell by 23.05 basis points to 4.8085%.
Griffin pointed out that he was surprised by the movement of US bonds on Tuesday, but a level of around 4.5% for the 10-year US bond yield is reasonable. Due to political pressure from the US presidential election, the country's fiscal policy is unlikely to tighten significantly next year, and lawmakers are unlikely to cut deficit spending before the next election.
Previously, another big player Stanley Druckenmiller criticized US Treasury Secretary Yellen for not issuing a large amount of debt during the low interest rate period. Griffin agreed with Druckenmiller's view and added that as US debt rises, the Treasury Department has been shortening the duration of the debt.
Griffin still expects a recession in the US in the second quarter of next year, but the severity will depend on several factors. On the same day, Nick Timiraos, a well-known financial journalist known as the "new Fed News Agency," wrote that Tuesday's inflation report indicates that the Fed may have completed this historic round of rate hikes in July, and the US is expected to achieve a soft landing.