- The Fed may have declared inflation victory too early, Stanley Druckenmiller said.
- Inflation could could be bottoming right now, the billionaire investor told a Norges Bank podcast.
- The Fed is too concerned about nailing down a soft landing, and should shape policy around long-term outlooks, he said.
Stanley Druckenmiller isn't ready to put inflation aside yet, and says the Federal Reserve shouldn't either.
"I'm a little worried that the Fed has declared victory too early," the billionaire investor said about consumer prices on a Norges Bank podcast. "With credit spreads tight, gold at new highs, equities roaring, no sign of material weakness in the economy — of course, there's some spots — that just makes me nervous that this thing could turn up again."
He's referring to the Fed deciding to start cutting interest rates, essentially prioritizing a flagging labor market over inflation viewed to be in check. After an initial 50-basis-point cut in September, the Fed lowered rates by another 25 basis points this week.
But history should caution against presuming that price growth will stay low, Druckenmiller suggested. Consider the 1970s, a tumultuous period in which inflation fell and rebounded, he said.
"It went back up again, and the number of months would correlate to the bottom being right now," Druckenmiller estimated.
In his view, the Fed's decision to pursue deeper interest rate cuts at a time of economic strength is a mistake caused by the bank's obsession with data-points. When inflation eases, the Fed lowers rates to make sure economic growth keeps up — and has justified its cuts given shifting labor prints.
That's the wrong approach, Druckenmiller said: "To me, the Fed's job is to avoid the big, big mistakes like the '70s, like the great financial crisis, like the big inflation we just had, but all this fine tuning and worrying about a soft landing that that is not the job of the Fed. In my opinion, it's to maximize employment for the long term, not for the next three months or the next four months."
The long-term picture may, in fact, be quite different now that Donald Trump has returned to the White House.
Though the podcast was recorded prior to the president-elect's victory, Druckenmiller cited that Trump's tariff plans are marginally inflationary. Meanwhile, immigration has been a non-inflationary source of growth for the US, he said; it is now at risk under Trump.