Billionaire hedge fund manager Paul TudorJones sees continued weakness coming as the US economy is heading into recession.
What happened: Jones, founder and chief investment officer of Tudor Investment, warned that the U.S. economy was headed for a recession if it wasn’t already in the middle of a Monday on CNBC’s “Squawk Box.”
“The Federal Reserve Board is fighting something it hasn’t really seen in almost four decades,” Jones said.
“Inflation is a bit like toothpaste. Once you take it out of the tube, it’s hard to put it back. The Fed is furiously trying to get that taste out of its mouth right now, and it’s doing it by raising interest rates.
The target federal funds rate is between 3% and 3.25%, the highest levels seen since before the 2008 financial crisis. More rate hikes are expected, as the Fed Chairman Jerome Powell has warned that the pain is coming.
“Powell has already talked about the pain. I take this as a metaphor for the recession. And if we go into a recession, that has really negative consequences for a variety of assets,” Jones said.
Why is this important: For inflation to return to 2%, wage inflation must come down, Jones said. The problem is that many workers expect a pay rise to offset the rapid rise in inflation that has taken place so far this year, he said, suggesting the Fed should continue to be aggressive.
“If they don’t continue and we have permanently high inflation, it just creates, I think, more problems down the road,” Jones said.
“If we’re going to have long-term prosperity, you need to have a stable currency and a stable way to value it…so there will be short-term pains associated with long-term gains,” Jones said.
Jones thinks the Fed needs to stay aggressive and therefore “assumes we’re going into” a recession, if we haven’t already.
The billionaire hedge fund manager shot to fame after correctly predicting the 1987 stock market crash, known as ‘Black Monday’.
US markets fell more than 20% in a single day during the October 19, 1987 “Black Monday” stock market crash. Computerized trading algorithms that followed a portfolio insurance strategy and fear investors would have been the main causes of the crisis. crisis.
Produced in collaboration with Benzinga.