The only question is when and how bad the recession will be.
The Federal Reserve faces a tough job in dealing with inflation, as interest rates are a very blunt tool, according to the founder of the Citadel. He urged policymakers to keep hiking rates because high prices shouldn't be accepted as the norm.
In a "hard landing" scenario, where the Fed's efforts to curb soaring prices lead to higher unemployment and a slower growth, the US is likely to suffer an economic downturn.
He said at the conference that there will be a recession. It is a question of when and how hard.
Can we have a hard landing at the end of '23? He said that it was absolutely true.
The US central bank has raised interest rates three times in a row to control inflation which is close to 40 years old. Rate hikes make borrowing more expensive and lead to falls in spending and growth.
The billionaire investor said that the Fed's task was made more difficult by the labor market and government spending.
It has been difficult for the Fed to use interest rates to address an overheating economy because Washington keeps making moves on the chess board. He said it was a difficult job.
The Fed needs to keep a lid on inflation because it is seen as a normal rate of inflation. A wage-price spiral could occur if persistently high levels lead to higher wage demands.
We should continue on the path that we're on to ensure that inflation expectations are reanchored.
To make sure that our country doesn't start to assume that we should expect a lot of inflation, there's a psychological component to the problem.
It becomes reality when you expect it broadly. It becomes the stakes in wage negotiations.
US stocks have been weighed down by uncertainty over the Fed's monetary tightening and the risk of a recession. The benchmark S&P 500 index is down more than 20% so far this year.
The losses have fallen short of predictions made earlier in the year.
Even in the face of high inflation, the stock market is showing some resilience. Russia is threatening to launch a nuclear war overUkraine.
The Citadel boss thinks that the stock market will fall further if there is a Fed-caused recession. Individual investors would be forced to pull their money out of equities and invest in bonds.
I don't want to sugar coat that the market is down. He told CNBC that it is not down as much as you might think.
People feel safe in their jobs and that's reflected by that. They're willing to put their money at risk in order to be safe in their jobs.
We would see a rotation out of equities and into fixed income if people started to hear about job losses.
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