Inflation trades “will be called into question” as Fed catches up, investor who called “stock market crash of 87”
““I know I think it will be difficult to sled for trades inflation, pandemic in the future. So the things that have worked best since March 2020 are likely to do the worst as we go through this tight crunch cycle.“
Billionaire hedge fund manager Paul Tudor Jones expects an interesting tightening cycle as the Federal Reserve and President Jerome Powell catch up after inflation exceeds the central bank’s 2% target, where she should stay for a while.
Jones, in an interview with CNBC, said that, on a relative basis, he doesn’t know whether these assets will “go down or go up,” but that they are “clearly going to be challenged” if the fed funds rate drops to 2. % over the next two years. “
Jones, who rose to fame for predicting the October 1987 stock market crash, has been a scathing critic of Powell and the Fed, previously complaining that policymakers were “inflation makers, not fighters.” inflation ”.
Read: 4 mistakes the Powell Fed made – from a former insider
Now that the Fed has turned to tightening monetary policy, Powell and his fellow policymakers will scramble to catch up, Jones said Tuesday.
The last time the unemployment rate was 3.9%, federal funds were at 1.75% and peaking at 2.5%, Jones said, while the 10-year Treasury yield was by 3%. The fed-funds rate is now in a range of 0% to 0.25%, while the 10-year rate recently tested the threshold of 1.80%.
Powell is going to “play catch-up.” And he’s got a lot of catching up to do, and I think that’s why you see them talk about quantitative tightening, because I don’t think he can catch up fast enough to try and fix the inflation problem. that he’s right now, ”Jones said. Quantitative tightening refers to the Fed’s reduction in its balance sheet, which has grown significantly since the pandemic took hold following the central bank’s quantitative easing measures.
The Fed is ending its monthly asset purchases as it puts an end to the latest round of quantitative easing. The minutes of the Fed policy meeting in December showed officials discussed swift action to start shrinking the balance sheet once QE is halted, a topic that was also raised by Fed officials. in public remarks.
Stocks faltered in the new year as investors leaned on a more aggressive Fed, but stocks appeared to find their way on Tuesday. The Dow Jones Industrial Average DJIA,
was up around 115 points, or 0.3%, while the S&P 500 SPX,
rose 0.7% and the Nasdaq Composite COMP,
jumped 1.3%.
Powell, who has been appointed by President Joe Biden for a second term as Fed chief, told the Senate Banking Committee on Tuesday that the central bank’s plans to raise interest rates should not upset economy or harm the labor market. Powell was testifying at his confirmation of charges hearing; it should get the approval of the entire Senate.