Ken Griffin: inflation will catch markets entirely by surprise

Coronavirus may be the most immediate threat to markets right now, but there are several longer-term ones, says Ken Griffin of investment firm Citadel – with inflation the most serious.

Ken Griffin, founder, Citadel

The outbreak of coronavirus in China is the most immediate threat to markets, but investors are overlooking several longer-term ones, says Ken Griffin, the founder of $32bn hedge-fund group Citadel. The most severe is Ken Griffin: inflation will catch markets entirely by surprise when it returns. 

US inflation is running at 1.6% per year, below the Federal Reserve’s target of 2%. Markets expect it to average around 1.7% over the next decade and show few fears that it could be much higher – as shown by the fact that investors are buying 30-year Treasury bonds on 2% yields. “In the United States, there is absolutely no preparedness for an inflationary environment,” Griffin said at an event in New York, reports Bloomberg. That applies to the central bank as well. “It’s clear that even our most well-informed policymakers… don’t see it coming either.”

Griffin also expects a debt crisis. “The [lack] of focus on the unsustainable amount of sovereign debt around the world is shocking to me.” He expects this to kick off in Europe. “I think it rears its ugly head when Italy hits the wall. Greece wasn’t big enough to really shake the foundations of the global economy.”

Finally, he thinks that the strains caused by the US-China trade war, combined with US pressure on Chinese firms such as Huawei, will fragment the tech industry and cost the US its global leadership. We are “going to see … the US and certain of our allies having one set of technology solutions and China and its allies having a second”.

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