At a recent economic conference in Riyadh, Saudi Arabia, top Wall Street CEOs expressed concern about ongoing inflation in the U.S. economy and questioned whether the Federal Reserve will continue its trajectory of interest rate cuts . After a 50 basis point cut in September, which signaled a fundamental shift in the Fed’s economic strategy, these top executives are unconvinced about the likelihood of two more cuts this year.
Analysts at major firms such as JPMorgan and Fitch Ratings have predicted further rate cuts through the end of 2024, with expectations that this trend could extend into 2025. CME Group’s FedWatch tool currently estimates a 98% chance of a rate cut. 25 basis points at the Fed’s next meeting in November, while a 78% probability suggests another reduction in December.
However, during a panel discussion at the Future Investment Initiative, none of the CEOs in attendance said they believe the Fed will implement two more cuts this year. Jenny Johnson, president and CEO of Franklin Templeton, expressed her view that inflation will likely persist due to the current state of job growth and wage ratios. He forecast only one more cut this year, highlighting a shift in the conversation from the recession fears that had dominated discussions a year earlier.
Larry Fink, CEO of BlackRock, which manages more than $10 trillion in assets, also expects a rate cut by the end of 2024. However, he warned of deeper, more entrenched global inflation, driven by government policies and by changing economic dynamics. He highlighted the implications of domestic policies, such as onshoring of production and immigration, on inflationary pressures, suggesting that the focus on consumer-oriented and cost-effective policies has shifted.
Recent statistics from the U.S. Bureau of Labor Statistics indicate that the consumer price index increased 2.4% in September from a year earlier, slowing slightly from August’s 2.5% increase. This is the lowest annual inflation rate since February 2021. However, the latest job creation data for October revealed the slowest growth since late 2020, although markets appeared indifferent to this negative news, attributing it to external factors.
David Solomon, CEO of Goldman Sachs, highlighted the likelihood of more entrenched inflation at a global level than that currently expected by market participants. He stressed that while inflation may not manifest as an immediate crisis, it could present ongoing challenges depending on future policy decisions.
Morgan Stanley CEO Ted Pick took a more definitive stance, declaring the era of ultra-low interest rates and financial repression to be over. He suggested that higher interest rates would become a global norm, reflecting a change in the geopolitical landscape and economic realities.
Apollo Global CEO Marc Rowan added to the speech by questioning the rationale behind the Fed’s rate cuts in the context of significant fiscal support measures, such as the Inflation Reduction Act and the CHIPS and Science Act. He emphasized that despite substantial rate hikes, the stock market remains at record highs and unemployment is low, prompting the question of why the Fed felt the need to cut rates at this juncture.
Overall, the sentiment of these senior executives reflects a cautious view on the Fed’s monetary policy and the broader economic landscape as they grapple with a complex interplay between inflationary pressures and fiscal stimulus measures.
