(Bloomberg) — Richard Tang, an executive at Chris Rokos’s hedge fund, says it’s unlikely the Federal Reserve will loosen monetary policy this year.
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The path of inflation has become very difficult to forecast, particularly in the context of a presidential election later this year, said Tang, head of global markets at Rokos Capital Management. The market is pricing in two interest rate cuts this year.
“It’s unlikely that the Fed will be able to cut this year,” Tang said in a Bloomberg Television interview Thursday. “We have a very significant presidential election coming up, and that does have policy implications, so once we get through all of this, it’s pretty much a 50-50 bet whether it’s an ease or a hike.”
Central banks have become addicted to giving forward guidance and forecasting has become treacherous for monetary policy decision makers, Tang said. Recent history has shown that markets shouldn’t lean on economic data to predict the next central bank policy move, he added.
“There’s an assumption in the market that you can extrapolate this data,” he said. While Wednesday’s US CPI data appeared more benign, six-month trailing CPI is still close to 4.1%, a way from the Fed’s target of 2%, he said.
Fed officials earlier this week pushed out expectations for the first interest-rate cut, emphasizing a need to keep borrowing costs elevated for longer amid disappointing inflation prints in the first quarter.
Moreover, policies under either administration would likely prove inflationary, he said, and uncertainty around potential tariff action under a Trump administration makes it particularly hard for central banks to price forward policy action.
His comments follow Citadel founder Ken Griffin saying that neither Donald Trump nor Joe Biden are likely to reduce US Federal spending. That’s a key impediment to reducing the rate of inflation in the US, he said.
“We are in a new regime,” Tang added. “The conventional correlations of econometric models are no longer applicable. How inflation is actually formed, I don’t think anyone really knows.”
Billionaire Rokos runs one of the largest macro hedge funds in the world with assets of more than $17 billion. His fund, known for taking big and high conviction bets, has gained 20% this year.
–With assistance from Nishant Kumar.
(Updates with market information in sixth paragraph)
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