Higher baseline inflation could remain for ‘decades’, according to billionaire investor Ken Griffin.
Griffin, who founded and runs Citadel, a Miami-based hedge fund firm that manages more than $60 billion in assets, said soaring prices could become entrenched as global unrest ushers in an era of deglobalization.
Speaking at the Bloomberg New Economy Forum in Singapore, the investor pointed to the Russia-Ukraine and Israel-Hamas wars, and how the pandemic disrupted supply chains, to demonstrate how ‘the peace dividend is clearly at the end of the road.’
‘With that is certainly a trend towards higher baseline inflation, he said. ‘It could be for decades.’
Inflation soared last year in the US, reaching a four-decade high of 9.1 percent in June 2022.
Higher baseline inflation could remain for ‘decades’, according to billionaire investor Ken Griffin
In a bid to tame rising prices, the Fed embarked on an aggressive rate hiking campaign, increasing the benchmark interest rate 11 times from March 2022 to July this year.
Annual inflation sunk to 3.7 percent in September – but is still above the Fed’s 2 percent target.
Griffin predicted that higher interest rates would become the norm, with Fed officials forced to keep borrowing costs high in order to maintain this target.
He said: ‘There’s a variety of reasons you want a low level of background inflation – it helps to lubricate the wheels of commerce.
‘That number the Fed has committed to is 2 percent. They are going to fight pretty hard to keep that as the target, for a litany of good reasons.’
The billionaire said that higher rates will also create more concerns about the US Government’s ability to repay its $33 trillion deficit, which would become more expensive to service in the event of Federal Reserve tightening.
Griffin said the Government had not counted on higher rates when it went on a ‘spending spree’ which resulted in the record debt.
He added that US fiscal spending needs to be put in order, as the country is ‘spending on the government level like a drunken sailor.’
Inflation soared last year, reaching a four-decade high of 9.1 percent in June 2022
US national debt has surpassed $33 trillion for the first time
‘We’re going to see higher real rates, and we’re likely to see higher nominal rates and that will have a real implication on the cost of funding our enormous deficit,’ he added.
The debt is made up of $26 trillion in debt held by the public and $7 trillion of debt in Treasury securities such as US government pension funds and the Social Security Trust Fund.
‘The United States has hit a new milestone that no one will be proud of: our gross national debt just surpassed $33 trillion,’ wrote Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, in a press release at the time.
Every year since 2001 the government has run a deficit of around $1 trillion. This includes spending on social safety net programs, debt interests and military funding.
Most recently national debt spiked as a result of the Covid-19 pandemic. The latest findings from the Congressional Budget Office suggest national debt will almost double in size over the next three decades.