Billionaire investor Stanley Druckenmiller expects the world’s largest economy to shrink next year due to the Federal Reserve’s efforts to curb high inflation.
“Our central case is a hard landing by the end of ’23,” he said Wednesday at CNBC’s Delivering Alpha Investor Summit.
“I’ll be amazed if we don’t have a recession in 23. I don’t know the timing, but certainly by the end of 23. I won’t be surprised if it’s not bigger than the so-called garden variety average.” “
The warning from Druckenmiller, who runs the Duquesne Family Office, comes after the Federal Reserve raised the Fed funds rate by another 75 basis points last week. Policymakers are trying to cool inflation levels through higher borrowing costs, which should slow economic activity. In recent months, inflation has hovered around four-decade highs above 8%.
The Fed is reducing the size of its balance sheet by nearly $9 trillion and has raised the Fed funds rate five times this year from near zero. The rapid pace of rate hikes included three sizes at three-quarters of a percentage point, pushing the benchmark rate into a range of 3% to 3.25%. The Fed recently projected a maximum rate of 4.6%.
“You don’t even have to talk about black swans to be scared,” he said. “The risk reward for owning assets doesn’t make a lot of sense,” added Druckenmiller, who is credited with George Soros’ famous $10 billion bet against the British pound in 1992.
Bond market investors signaled their views on an impending recession, sending short-term Treasury yields higher than long-term yields. The two-year yield was at 4.27% and the 10-year at 3.94% on Wednesday, each recently hitting multi-year highs as bond prices fell.