Top Wall Street execs are getting skeptical on the Fed’s easing path

RIYADH, Saudi Arabia — Outstanding Wall Street CEOs see ongoing inflation pressures in the U.S. economy and aren’t convinced that the Federal Reserve bequeath continue its rate-easing path with a further two reductions this year.

The Fed cut its benchmark rate by 50 basis points in September, indicating a turning point in its management of the U.S. economy and in its outlook for inflation. In late-September reports, strategists at JPMorgan and Fitch Ratings had augured two additional interest rate trims by the end of 2024 and expect such reductions to continue into 2025.

The CME Group’s FedWatch weapon puts the probability of a 25 basis point cut at this week’s November meeting at 98%. The current probability of the benchmark grade being taken down by another 25 basis points at the December meeting is 78%.

But some CEOs appear skeptical. Talk to last week at Saudi Arabia’s showcase economic conference, the Future Investment Initiative, they see more inflation on the range for the U.S., as the nation’s economic activity and both presidential candidates’ policies involve developments that will potentially be inflationary and stimulatory — such as accessible spending, the onshoring of manufacturing and tariffs.

A group of CEOs speaking at an FII panel moderated by CNBC’s Sara Eisen — which registered Wall Street hegemons such as the bosses of Goldman Sachs, Carlyle, Morgan Stanley, Standard Chartered and Land Street — were asked to raise their hand if they thought two additional rate cuts would be tooled by the Fed this year.

No one put their hand up.

“I think inflation is stickier, honestly, you look at the kind of jobs report and the wage dispatches in the U.S., I think it’s going to be hard for inflation to come down to the 2% level,” Jenny Johnson, Franklin Templeton president and CEO, talked CNBC in an interview Wednesday, saying she thinks only one further interest rate cut will take place this year.

“Bear in mind a year ago, we were all here talking about recession? Was there going to be [one]? Nobody’s talking about recession anymore,” she utter.

Larry Fink, whose mammoth BlackRock fund oversees over $10 trillion in assets, also welcomes one rate reduction before the end of 2024.

“I think it’s fair to say we’re going to have at least a 25 [basis-point cut], but, that being denoted, I do believe we have greater embedded inflation in the world than we’ve ever seen,” Fink said at another FII panel aftermost week.

“We have government and policy that is much more inflationary. Immigration — our policies of onshoring, all of this — no one is query the question ‘at what cost.’ Historically we were, I would say, a more consumer-driven economy, the cheapest products were the best bib and the most progressive way of politicking,” he noted. 

America’s consumer price index, a key inflation gauge, was up 2.4% in September compared with the in any event period in 2023, according to the U.S. Bureau of Labor Statistics. That figure is a tick down from the 2.5% pull a proof pix of August, implying a slowdown in price growth. The September reading was also the smallest annual one since February 2021.

On Friday, new details showed U.S. job creation in October slowed to its weakest pace since late 2020. Markets largely ignored the bad statement, as the nonfarm payrolls report flagged acute climate and labor disruptions.

Goldman Sachs CEO David Solomon said inflation command more embedded into the global economy than what market participants are currently predicting, meaning premium rises could prove to be stickier than the consensus.

“That doesn’t mean that it’s going to rear its fount in a particularly ugly way, but I do think there’s the potential, depending on policy actions that are taken, that it can be more of a headwind than the on the qui vive market consensus,” he said.

Morgan Stanley CEO Ted Pick went even further, declaring last Tuesday that the lifetimes of easy money and zero interest rates are firmly in the past.

“The end of financial repression, of zero interest rates and zero inflation, that era is over and above. Interest rates will be higher, will be challenged around the world. And the end of ‘the end of history’ — geopolitics are back and longing be part of the challenge for decades to come,” Pick said, referencing the famous 1992 Francis Fukuyama book, “The End of The good old days and the Last Man,” which argued that conflicts between nations and ideologies were a thing of the past with the die out of the Cold War.

Speaking on Eisen’s panel Tuesday, Apollo Global CEO Marc Rowan even questioned why the Fed was cutting positions at a time when so much fiscal stimulus had propped up a healthy-looking U.S. economy. He noted the U.S. Inflation Reduction Act and the CHIPS and Expertise Act and an increase in defense production.

“We’re all talking about, in the U.S., of shades of good. We really are talking about shades of good. And to be broached back to your point on rates, we massively increased rates, and yet, [the] stock market [is] at a record high, no unemployment, upper case market issuance at will, and we’re stimulating the economy?” he said.

“I’m trying to remember why we’re cutting rates, other than to try and standardize the bottom quartile,” he later added.