Ken Griffin, the founder and CEO of Citadel, believes the Federal Reserve has more work to do to drive down inflation, even after a series of large rate hikes.
“We need to continue down that path to ensure we re-anchor inflation expectations,” Griffin said Wednesday at CNBC’s Delivering Alpha Investor Summit in New York City.
The billionaire investor said inflation has a psychological component and people in the US should not assume inflation above 5% is the norm.
“Once you expect it broadly enough, it becomes a reality and becomes the stake in wage negotiations, for example,” Griffin said. “So it’s important that we don’t let inflation expectations become anchored.”
The consumer price index rose 8.3% year over year in August, nearly a 40-year high and surpassed consensus expectations. To curb inflation, the Fed is tightening monetary policy at its most aggressive pace since the 1980s. The central bank raised interest rates by three-quarters of a percentage point for the third time in a row last week and promised further rate hikes would follow.
Griffin said he believes the Fed has a difficult job of taming inflation without slowing the economy too much. He said there could be a chance of a recession next year.
“Everyone likes to predict recessions, and there will be one. It’s just a matter of when, and frankly, how hard. Is it possible we’ll have a hard landing by the end of ’23? Absolutely,” Griffin said.
Citadel has had a great year despite the market turmoil and challenging macro environment. The multi-strategic flagship fund Wellington rose 3.74% last month, bringing its performance to 25.75% in 2022, according to a person familiar with returns.
Speaking of the Bank of England’s intervention in the bond market, Griffin said he is concerned about the fallout from dwindling investor confidence. The central bank said it would buy long-term government bonds in whatever quantity it needed to end the chaos caused by the government’s plans to cut taxes.
“I am concerned about what the loss of confidence in the UK means. It is the first time in a very long time that we have seen a large developed market lose investor confidence,” said Griffin.