Major Wall Street CEOs see ongoing inflation pressures in the U.S. economy and aren\u2019t convinced that the Federal Reserve will continue its rate-easing path with a further two reductions this year.<\/p>\n
The\u00a0Fed cut\u00a0its benchmark\u00a0rate\u00a0by 50 basis points in September, indicating a turning point in its management of the U.S. economy and in its outlook for inflation. In late-September reports, strategists at\u00a0JPMorgan\u00a0and\u00a0Fitch Ratings\u00a0had predicted two additional interest rate trims by the end of 2024 and expect such reductions to continue into 2025.<\/p>\n
The CME Group\u2019s\u00a0FedWatch tool\u00a0puts the probability of a 25 basis point cut at this week\u2019s November meeting at 98%. The current probability of the benchmark rate being taken down by another 25 basis points at the December meeting is 78%.<\/p>\n
But some CEOs appear skeptical. Speaking last week at Saudi Arabia\u2019s showcase economic conference, the Future Investment Initiative, they see more inflation on the horizon for the U.S., as the nation\u2019s economic activity and both presidential candidates\u2019 policies involve developments that will potentially be inflationary and stimulatory \u2014 such as public spending, the onshoring of manufacturing and tariffs.<\/p>\n<\/div>\n
\n
A group of CEOs speaking at an FII panel moderated by CNBC\u2019s Sara Eisen \u2014 which included Wall Street hegemons\u00a0such as\u00a0the bosses of Goldman Sachs, Carlyle, Morgan Stanley, Standard Chartered\u00a0and\u00a0State Street \u2014 were asked to raise their hand if they thought two additional rate cuts\u00a0would be\u00a0implemented by the Fed this year.<\/p>\n
No one\u00a0put their\u00a0hand\u00a0up.<\/p>\n
\u201cI think inflation is stickier, honestly, you look at the kind of jobs report and the wage reports in the U.S., I think it\u2019s going to be hard for inflation to come down to the 2% level,\u201d Jenny Johnson, Franklin Templeton president and CEO, told CNBC in an interview Wednesday, saying she thinks only one further interest rate cut will take place this year.<\/p>\n
\u201cRemember a year ago, we were all here talking about recession? Was there going to be [one]? Nobody\u2019s talking about recession anymore,\u201d she said.<\/p>\n
Larry Fink, whose mammoth BlackRock fund oversees over $10 trillion in assets, also sees one rate reduction before the end of 2024.<\/p>\n
\u201cI think it\u2019s fair to say we\u2019re going to have at least a 25 [basis-point cut], but, that being said, I do believe we have greater embedded inflation in the world than we\u2019ve ever seen,\u201d Fink said at another FII panel last week.<\/p>\n
\u201cWe have government and policy that is much more inflationary. Immigration \u2014 our policies of onshoring, all of this \u2014 no one is asking the question \u2018at what cost.\u2019 Historically we were, I would say, a more consumer-driven economy, the cheapest products were the best and the most progressive way of politicking,\u201d he noted.<\/p>\n
America\u2019s\u00a0consumer price index, a\u00a0key inflation gauge, was\u00a0up 2.4% in September\u00a0compared with the same period in 2023, according to the U.S. Bureau of Labor Statistics. That figure is a tick down from the 2.5% print of August, implying a slowdown in price growth. The September reading was also the smallest annual one since February 2021.<\/p>\n
On Friday, new data showed\u00a0U.S. job creation in October slowed\u00a0to its weakest pace since late 2020. Markets largely ignored the bad news, as the nonfarm payrolls report flagged acute climate and labor disruptions.<\/p>\n
Goldman Sachs CEO David Solomon said inflation will more embedded into the global economy than what market participants are currently predicting, meaning price rises could prove to be stickier than the consensus.<\/p>\n
\u201cThat doesn\u2019t mean that it\u2019s going to rear its head in a particularly ugly way, but I do think there\u2019s the potential, depending on policy actions that are taken, that it can be more of a headwind than the current market consensus,\u201d he said.<\/p>\n
Morgan Stanley CEO Ted Pick went even further, declaring last Tuesday that the days of easy money and zero interest rates are firmly in the past.<\/p>\n
\u201cThe end of financial repression, of zero interest rates and zero inflation, that era is over. Interest rates will be higher,\u00a0will\u00a0be challenged around the world. And the end of \u2018the end of history\u2019 \u2014 geopolitics are back and will be part of the challenge for decades to come,\u201d Pick said, referencing the famous 1992 Francis Fukuyama book, \u201cThe End of History and the Last Man,\u201d which argued that conflicts between nations and ideologies were a thing of the past with the ending of the Cold War.<\/p>\n
Speaking on Eisen\u2019s panel Tuesday, Apollo Global CEO Marc Rowan even questioned why the Fed was cutting rates at a time when so much fiscal stimulus had propped up a healthy-looking U.S. economy. He noted the U.S. Inflation Reduction Act and the CHIPS and Science Act and an increase in defense production.<\/p>\n
\u201cWe\u2019re all talking about, in the U.S., of shades of good. We really are talking about shades of good. And to come back to your point on rates, we massively increased rates, and yet, [the] stock market [is] at a record high, no unemployment, capital market issuance at will, and we\u2019re stimulating the economy?\u201d he said.<\/p>\n
\u201cI\u2019m trying to remember why we\u2019re cutting rates, other than to try and equalize the bottom quartile,\u201d he later added.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
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