The US will go into recession — it's just a question of when and how hard, Citadel's Ken Griffin warned.
He urged the Fed to keep to its rate hikes so that high inflation doesn't drive a wage-price spiral.
US stocks are holding up for now, but job losses could drive a sell-off, the billionaire investor told CNBC.
Hedge fund billionaire Ken Griffin has warned the US will go into recession — the only question is when and how painful it will be.
In a CNBC interview, the Citadel founder also acknowledged the Federal Reserve faces a tough job in tackling inflation, as interest rates are a "very blunt tool". But he urged policymakers to keep hiking rates aggressively to make sure high prices don't become accepted as the norm.
Griffin said Wednesday that economic downturn now looks inevitable for the US — particularly in a "hard landing" scenario, where the Fed's efforts to curb soaring prices lead to higher unemployment and a slowdown in growth.
"Everybody likes to forecast recessions, and there will be one," he said at CNBC's 'Delivering Alpha' conference. "It's just a question of when, and frankly, how hard."
"Is it possible [that at the end] of '23 we have a hard landing? Absolutely," he added.
The US central bank has raised interest rates by 75 basis points at three meetings in a row to curb inflation, which is running close to 40-year highs. Rate hikes tend to make a recession more likely because they make borrowing money more expensive, leading to falls in spending and growth.
The billionaire investor said the Fed's task was made harder by an unprecedented labor market and a "tremendous" amount of government spending.
"So the Fed's had a really difficult job to try to use a very blunt tool — interest rates — to address an overheating economy where Washington keeps making moves on the chess board that turned the oven hotter. So it's a tough job," he said.
Griffin called on the Fed to continue with its aggressive rate hikes to make sure it keeps a lid on what is seen as a normal rate of inflation. If not, persistently high levels could lead to higher wage demands, which feed into a wage-price spiral where repeated pay rises spur prices higher.
"We should continue on the path that we're on to ensure that we reanchor inflation expectations," Griffin said.
"There's a psychological component to inflation that we need, to make sure that our country doesn't start to assume that we should expect 5 or 6 or 7% inflation.
"Because once you expect it broadly enough, it becomes reality. It becomes the table stakes in wage negotiations, for example."
Uncertainty over the Fed's monetary tightening and the risks of recession has weighed on US stocks in 2022. The benchmark S&P 500 index has tumbled 22.2% this year so far, as equity markets suffered a broad selloff.
But the losses have fallen short of the 50% selloff predicted by market gurus like Jeremy Grantham and Michael Burry earlier in the year.
Griffin said the US stock market is showing some resilience, even in the face of high inflation, central bank interventions. It's also facing off the threat of Russia launching a nuclear war over Ukraine.
But the Citadel boss said he expects stocks to fall further, if a Fed-induced recession leads to higher unemployment. That would lead individual investors to start pulling their money out of equities and pivot to less risky assets such as bonds.
"The market is — of course, it's down, I don't want to sugarcoat that. But it's not down as much as you probably would have thought if you looked at the news headlines," he told CNBC.
"That, again, reflects [that] people have job security, they feel safe in their jobs. Because they're safe in their jobs, they're willing to put money at risk in the stock market.
"If people started to hear their neighbors losing their jobs, we'd see a rotation out of equities and into fixed income."
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