The market has managed to put behind the “economic anxiety” it faced as recently as the fourth quarter of 2023, according to Citadel CEO Ken Griffin.
The hedge fund manager said Tuesday that a soft landing could happen this year, with recent data indicating a solid labor market, healthy GDP growth and inflation moderating at a better pace than expected. Inflation could even fall into the low 2% range by the end of 2024, Griffin noted.
“The [Federal Reserve] can start to cut rates come this summer, and we will see unemployment touch up a little bit. But the overall economy looks pretty damn good right now,” Griffin told CNBC’s Leslie Picker on Tuesday at the MFA Network event in Miami. “This is a real change in mindset from where we were September, October last year.”
The Fed kicked off its first monetary policy of the year earlier Tuesday. The central bank is expected to keep rates unchanged, but the market is pricing in several rate cuts later in 2024.
However, Griffin noted that the current level of federal spending has created an economy that “feels really good right now,” but could come at a cost. “This government spending has got to get in check. It’s creating [a] bit of euphoria right now, but it will come with a hangover,” said Griffin.
While the combination of cutting rates and high levels of government spending is inflationary, Griffin said the energy and food price shocks that occurred two years ago are now reversing, as well as a slight pullback in hiring. He thinks this has helped create an “easier environment” for the Fed to navigate in its battle against inflation.
Taiwan concerns
Griffin remains concerned by the economic risks of tensions between the U.S. and China, particularly in regard to Taiwan. The island’s semiconductors are crucial to many U.S. companies, he said.
“If there were a rupture around Taiwan, it would be catastrophic to both the Chinese and the American economy — and by catastrophic, I think you’re looking at Great Depression circumstances,” said Griffin.
U.S. GDP could take a hit of 8% to 10% if it lost access to Taiwanese semiconductors, meaning peace between Taiwan and China is “important as a matter of national economic security,” per Griffin.
Griffin’s remarks come as the S&P 500 hovers near record highs along with the Dow Jones Industrial Average. The broad market index has gained 3% already, building on its 24% gain from 2023. The Dow is up nearly 2%.
Griffin runs one of the biggest hedge funds in the world, with roughly $58 billion in assets under management.
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