Billionaire Ken Griffin said stiff inflation could persist “for decades” as wars in Ukraine and Israel further push the world towards “deglobalization” — and warned of dire consequences as the US government continues its spending binge.
The founder of the giant Citadel hedge fund — who’s worth a reported $35.5 billion, per Bloomberg estimates — said the federal government clearly didn’t brace for inflation during the pandemic, when it “went on the spending spree that created a $33 trillion deficit.”
Last month, the US government posted a $1.695 trillion budget deficit in fiscal 2023, a 23% jump from the prior year as revenues fell and outlays for Social Security, Medicare and record-high interest costs on the federal debt rose.
The US’s fiscal binge must be reined in, Griffin added, as the country is “spending on the government level like a drunken sailor.”
The Treasury Department said the deficit was the largest since a COVID-fueled $2.78 trillion gap in 2021, though President Joe Biden is still asking Congress for $100 billion in new foreign aid and security spending — including $60 billion for Ukraine and $14 billion for Israel — along with funding for US border security and the Indo-Pacific region.
The figures are unsustainable, according to Griffin, and mark a major return to ballooning deficits after back-to-back declines during President Biden’s first two years in office.
Surging inflation, meanwhile, will increase the cost of funding the US deficit, he warned.
“The peace dividend is clearly at the end of the road,” Griffin said at the Bloomberg New Economy Forum in Singapore on Thursday, nodding to international conflicts in Eastern Europe and the Middle East.
“We are likely to see higher real rates and we’re likely to see higher nominal rates,” he added, according to Bloomberg.
The fiscal 2023 deficit would have been $321 billion larger, but was reduced by this amount because the Supreme Court struck down Biden’s student loan forgiveness program as unconstitutional.
The ruling forced the Treasury to reverse a pre-emptive charge against fiscal 2022 budget results that increased that year’s deficit.
The fiscal year 2022 deficit was $1.375 trillion.
The 55-year-old hedge fund titan also pointed to pandemic-induced supply-chain disruptions and European countries losing access to Russian natural gas as reason that “a trend towards higher baseline inflation…could be for decades,” per the outlet.
“There’s many trends at play right now that are pushing us toward deglobalization,” he added.
Inflation has squeezed Americans since before its 9.1% peak in June 2022, which spurred the Federal Reserve’s aggressive tightening regime that has lowered the figure sharply but has yet to reach the central bank’s 2% target.
In September, the Consumer Price Index — the most widely used measure of inflation that tracks the overall change in goods and services — rose 3.7% year over year, driven primarily by the gasoline index’s advance.
The gasoline index ticked 2.1% higher last month, the federal agency said, a stark slowdown from August’s 10.6% increase, when AAA figures showed that the average price for a gallon of gas was $3.85.
As of Thursday, a gallon of gas in the US averages $3.40, according to AAA.
While many investors had been willing to look past the volatile energy numbers, a surprisingly resilient labor market has some worried that inflation could be more stubborn.
However, Griffin warned that US consumers realize deep down that “something is not quite right,” despite the country’s payroll gains, according to Bloomberg.
October’s CPI data will be released on Nov. 14.
Should inflation rise again, all attention will no doubt be on whether the Fed implements one more interest rate hike by the end of the year, pushing it beyond its current 22-year high, between 5.25% and 5.5%.
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