Citadel's Ken Griffin on Inflation, Recession, Jobs, Fed, FTX, Crypto

Citadel’s Ken Griffin on Inflation, Recession, Jobs, Fed, FTX, Crypto

  • Ken Griffin said US inflation has probably peaked, but the Fed needs to squash the threat entirely.
  • Citadel’s billionaire CEO expects about 4.5% unemployment and a recession next year.
  • Griffin warned the collapse of Sam Bankman-Fried’s FTX has shaken investors’ confidence in markets.

US inflation has likely peaked, but the Federal Reserve should keep raising interest rates to avoid more economic pain in the future, Ken Griffin said at the 2022 Bloomberg New Economy Forum this week.

The billionaire investor and Citadel CEO also predicted an unemployment spike and recession next year, warned the implosion of Sam Bankman-Fried’s FTX exchange could spark a crisis of faith in financial markets, and cautioned that cutting off China’s access to US microchips could end in disaster .

Here are Griffin’s 10 best quotes, lightly edited for length and clarity:

1. “We think we have seen peak inflation. We think by the end of 2023, our central view of inflation will be back to roughly a low-to-mid 2% range.” (Griffin suggested metropolitan rents and energy prices have already peaked, and said a shift in consumer demand from goods to services, coupled with retailers discounting stock to get rid of excess inventory, would likely relieve inflation.)

2. “I can’t imagine how many flat-screen TVs were sold to Americans in the pandemic that are frankly not used nearly as much today as they were a year ago. This shift from a goods-based economy to a service-based economy is going to create depreciation in the pricing of goods, which will help bring inflation down.”

3. “For the Fed to truly conquer inflation here, we’re going to put unemployment somewhere in the mid-4% range. I find it hard to believe we’re not going to have a recession at that point in time, sometime in the middle to back half of 2023.” (US unemployment was 3.7% in October.)

4. “It’s not yet time for us to change course on our monetary policy. We want to see that we put the inflation genie back in the bottle. We’ve endured a ton of pain in getting to this point. The housing market is definitely under Duress. Durable-good sales are under duress. We haven’t gotten the job done. To take the foot off the brake right now and not finish the job is the absolute worst mistake the Fed could possibly make.”

5. “It’s sort of like saying you go to your doctor, you’ve got a bacterial infection and he gives you 10 pills to take, and you stop taking them after pill number seven and then you relapse a few days later. If we don’ t finish the course of antibiotics, and inflation starts to flare back up, the Fed will have lost credibility. a much bigger bill to pay. We shouldn’t put ourselves in a position to pay that bill. We should get the job done now.” (Griffin was explaining why the Fed can’t back down in its inflation fight.)

6. “FTX is one of these absolute travesties in the history of financial markets. People are going to lose billions of dollars. That undermines trust in all financial markets.”

7. “The confidence of a generation in financial markets has been shaken. That’s really awful because the 20-somethings to 40-year-olds who are so engaged in crypto, they’ve got to save for their retirement. If they don’t believe or trust in financial markets, this is a huge problem. They need to own stocks, they need to own corporate debt, they need to partake in our global capital markets.”

8. “The turf war by American regulators has got to end. It’s just preposterous that the agencies all dance around who owns what. The bottom line is American investors have really gotten hurt here, to the tune of hundreds of billions of dollars in decline in market cap in crypto over the last two years. That really strikes at the essence of what investor protection is all about.”

9. “The duration of the war in Ukraine is an existential issue for Europe, for Germany in particular.” (Griffin noted that if if the Russia-Ukraine conflict extends into the summer, Europe could face a severe gas shortage next winter, and European support for Ukraine could flag.)

10. “The United States has no ability to produce anywhere near the number of semiconductors it needs to run its economy. We are utterly and totally dependent on the Taiwanese for modern semiconductors in America. You can argue that by depriving the Chinese of access to semiconductors, we up the risk that they seize Taiwan. We’re playing with fire here. If we lose access to Taiwanese semiconductors, the hit to US GDP is probably in the order of magnitude of 5% to 10%. It’s an immediate Great Depression. “

Read more: Bank of America shares one area of ​​the bond market set to deliver 13% returns in 2023 — and lays out the drivers of its “big reversal”

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