Billionaire investor Stanley Druckenmiller worries that the Federal Reserve has put itself in a dilemma when it comes to possible future rate cuts.
“I hope the Fed is not trapped by forward guidance as it is in 2021,” Druckenmiller said by email after U.S. job growth in September exceeded all economists’ expectations. “GDP is above trend, corporate profits are strong, stocks are at all-time highs, credit is very tight, gold is at all-time highs. Where is the tightening?”
The comments from Druckenmiller, 71, who runs the Duquesne Family Office, continued warnings from others on Wall Street that markets need to adjust their expectations for the pace and extent of Fed easing.
Traders pared bets on a big rate cut next month after the jobs report, ruling out a 50 basis point cut to match the Fed’s September move. Meanwhile, Fed policymakers signaled last month that they favor 50 basis point rate cuts at the two remaining meetings this year.
At Grant's annual fall conference in New York earlier this week, Druckenmiller questioned whether the Fed's decision to cut interest rates by 50 basis points at its most recent meeting was appropriate. BlackRock CEO Fink also said earlier this week that the market is too optimistic about the Fed's easing, citing strong U.S. economic growth as a basis.
Top economist Mohamed El-Erian also sounded a warning to the Fed after the jobs data was released, saying "inflation has not disappeared."
El-Erian, dean of Queens' College at the University of Cambridge, said the Federal Reserve needs to refocus its efforts to fight rising prices after an unexpectedly strong September jobs report reminded people that "inflation is not gone away."
El-Erian’s comments came after Friday’s release of numbers that far exceeded expectations, triggering a jump in U.S. stocks and bond yields. Nonfarm payrolls increased by 254,000 in September, the biggest gain in six months.
“This is not just a solid labor market, this is a strong labor market if you take the numbers at face value,” El-Erian said in an interview on Friday.
He added: “For the Fed, this means working harder to resist market pressure to think of it as having a single mission and stop talking about ‘the Fed should only care about full employment,’ ”
The Fed's dual mandate is maximum employment and price stability.
"For the market, this overturns the overblown expectations of aggressive rate cuts from the Fed, which would bring the market closer to what is likely to happen," El-Erian said.
The article is forwarded from: Jinshi Data