Market MovesFebruary 10, 2020

Ken Griffin: Nobody Cares About Inflation, but They Should

Hedge fund kahuna laments that markets aren’t prepared for a return bout of soaring prices.

Reported by Larry Light

If there’s one threat that practically no one sees nowadays, it’s inflation. But hedge fund operator Ken Griffin is the exception.

What’s more, he’s worried that nobody else seems to be gearing up for the possibility of an inflationary up-trend. “If there were inflation, the markets are utterly and completely unprepared for that,” Griffin said at an Economic Club of New York lunch.

The founder of hedge fund giant Citadel ($30 billion in assets), Griffin has been fretting over inflation as a potential threat for some time.

At the lunch, he explained how his staff had examined the meeting minutes of Federal Reserve’s policymaking body, prior to the Fed’s reversing its rate-raising campaign last year, boosting rates three times. The minutes were bereft of any discussion about inflation’s return, which he said showed “even our most well-informed policymakers” could miss inflation indications.

At the moment, inflation has been quiet. The Fed’s favorite benchmark for inflation, the personal consumption expenditures price index, is 1.6%, with barely any increase expected in the next decade. The Fed would like to see inflation top 2% and has said it’s putting further rate action on hold until it sees any meaningful inflationary advances, which are unlikely.

This fear of inflation has been a theme of Griffin’s for a while. In a 2018 letter to his investors he wrote that, because of economic stimulus like the then-recent tax cut and a rising global economy, inflation could return: “With the global economy rebounding and resource utilization tightening, we are carefully positioning for the possibility that inflation surprises to the upside.”

When it comes to real estate inflation, Griffin has done his bit to contribute. Last year, he paid $238 million for a New York City penthouse, the record for the highest sum ever paid for a US home.