Ken Griffin, the billionaire investor and founder of Citadel, has voiced a stark prediction about the future of inflation, suggesting that high inflation rates could persist for decades.
Speaking at the Bloomberg New Economy Forum in Singapore, Griffin attributed this long-term inflationary trend to a combination of the COVID-19 pandemic and ongoing conflicts in Europe and the Middle East, which he believes are ushering in an era of deglobalization.
“The peace dividend is clearly at the end of the road,” Griffin said, as reported by Bloomberg. “We are likely to see higher real rates and we’re likely to see higher nominal rates.”
Griffin pointed out that several current trends are driving the world towards deglobalization. He cited the pandemic’s disruption of supply chains and the loss of access to Russian natural gas for European countries due to the war in Ukraine as key factors contributing to this shift. According to Griffin, this move towards deglobalization is likely to result in a trend of higher baseline inflation that could last for decades.
Inflation soared across the developed world last year, reaching a four-decade high of 9.1% in June in the United States. However, it has since shown signs of cooling toward the Federal Reserve’s 2% target, following aggressive tightening between March and July of 2022. Despite this, Griffin predicts that higher interest rates will become the new norm, with policymakers compelled to keep borrowing costs elevated to maintain their target inflation rate of about 2%.
Griffin also highlighted the potential consequences of these higher rates, particularly concerning the U.S. government’s ability to service its $33 trillion debt. He noted that the cost of funding the enormous deficit will increase due to Federal Reserve tightening.
Griffin added that the U.S. did not plan for an era of higher rates when it embarked on the spending spree that created the $33 trillion deficit.
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