Wall Street Executives Doubt Federal Reserve's Ease on Rates Amid Inflation Concerns

In a recent event in Riyadh, Saudi Arabia, significant Wall Street CEOs expressed their skepticism regarding the Federal Reserve's plan to ease interest rates further. They voiced concerns about continued inflation pressures affecting the U.S. economy.

The Federal Reserve had recently reduced its benchmark interest rate by 50 basis points in September, marking a crucial shift in its monetary policy. Some analysts, including those from J.P. Morgan and Fitch Ratings, anticipated two additional cuts by the end of 2024, with predictions extending into 2025.

The CME Group's FedWatch tool indicated a 98% likelihood of a 25-basis-point cut at the upcoming November meeting, and a 78% chance for a similar reduction in December. Despite these predictions, many executives appeared doubtful.

Inflation on the Horizon

At the Future Investment Initiative conference, these executives discussed potential inflationary pressures stemming from various factors tied to U.S. economic activities. The discussions highlighted how proposed public spending, policies related to manufacturing relocation, and tariffs could all fuel inflation.

During a panel moderated by CNBC's Sara Eisen, top executives—including the leaders of Goldman Sachs, Carlyle Group, Morgan Stanley, Standard Chartered, and State Street—were asked if they believed the Fed would cut rates two more times this year, but none raised their hands.

Perspectives from Wall Street Leaders

Jenny Johnson, President and CEO of Franklin Templeton, noted that inflation trends appear more persistent than previously anticipated. She remarked that recent job reports suggest a challenge in bringing inflation down to the target level of around 2%.

Larry Fink, CEO of BlackRock, echoed similar sentiments, stating, "There’s more embedded inflation in the world than we've ever seen," and pointing to the increasing cost of governmental policies.

The U.S. consumer price index, an essential measure of inflation, increased by 2.4% in September compared to the previous year, showing a slight slowdown in price growth. Additionally, job creation in October was reported to have slowed significantly, reaching its lowest increase since late 2020.

Future Expectations and Market Conditions

David Solomon, the CEO of Goldman Sachs, articulated beliefs that inflation is becoming more ingrained in the global economy, suggesting that unexpected price rises could hinder market progression. He stated, "The potential for inflation to become a bigger issue may not be fully appreciated yet."

Meanwhile, Ted Pick, CEO of Morgan Stanley, declared that the era of easy money and zero interest rates is over, emphasizing that higher rates should be expected moving forward.

Marc Rowan, CEO of Apollo Global Management, raised questions about the Fed’s reasoning behind cutting rates amid substantial fiscal stimulus and a seemingly robust economy, pointing to various acts promoting growth and support.

WallStreet, Inflation, Fed