Ken Griffin Says Markets Are Unprepared for Inflation

(Bloomberg) -- U.S. markets are “utterly and completely unprepared” for the possibility that inflation might pick up after years of subdued price gains, hedge fund manager Ken Griffin said.

“In the United States there is absolutely no preparedness for an inflationary environment,” Griffin, founder of $30 billion hedge fund Citadel, said at an Economic Club of New York luncheon on Thursday.

Griffin didn’t comment further on what he sees as a lack of readiness. Expectations of continued low inflation have emboldened investors to load up on long-dated debt, helping to push the rate on 30-year Treasury bonds close to 2%, near historic lows.

Read more: Inflation Hedges Look Cheap to Former Fed Economist Ryding

The Federal Reserve’s preferred inflation measure is currently at 1.6%, and it’s held well below the central bank’s 2% target for much the past decade. That consistent undershoot has contributed to a subdued outlook for price pressures over the years to come. Market expectations -- reflected in break even rates -- are for consumer price inflation to remain around 1.7% over the next decade.

“It’s clear that even our most well informed policymakers, and I do believe the Fed does phenomenally good research on economic policy, don’t see it coming either,” Griffin said of rising inflation.

Among his other comments:

• “I think we’re going to see a handful of direct listings from some of the very big successful startup names,” but most companies will stick with traditional initial public offerings
• “The amount of focus on the unsustainable amount of sovereign debt around the world is shocking to me. I think it rears its ugly head when Italy hits the wall. Greece wasn’t big enough to really shake the foundations of the global economy”
• The trade war is pushing China to eliminate its dependency on U.S. technology: “We’re now going to see a bifurcated stack, the United States and certain of our allies having one set of technology solutions and China and its allies having a second”
• “We need to counter the socialist rhetoric that we see far too often in this election cycle,” he said, adding that political candidates running as socialists is a reality in the United States that is “almost unimaginable”
• The coronavirus outbreak centered in China is probably the most concrete short-term risk to the financial markets globally, he said

Citadel contributed $7.5 million to coronavirus relief efforts, through donations and sending medical supplies. The firm’s brokerage and hedge fund businesses have operated in China for years.

Griffin is worth an estimated $15.5 billion, according to the Bloomberg Billionaires Index.

--With assistance from Emily Barrett.

To contact the reporters on this story: Hema Parmar in New York at hparmar6@bloomberg.net;Lananh Nguyen in New York at lnguyen35@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Melissa Karsh, Alan Mirabella

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