Quiver Quantitative - Richard Tang, head of global markets at Rokos Capital Management, stated in a Bloomberg Television interview that the Federal Reserve is unlikely to loosen monetary policy this year. Despite market expectations of two interest rate cuts in 2024, Tang emphasized the significant uncertainties surrounding inflation, particularly with a presidential election looming. He highlighted that the complexity of forecasting inflation and the policy implications of the election make it nearly a 50-50 bet whether the Fed will ease or hike rates once these uncertainties are resolved.
Tang pointed out that central banks have become overly reliant on forward guidance, making monetary policy forecasting increasingly difficult. He warned against extrapolating economic data to predict central bank moves, noting that while recent US CPI data appeared more benign, the six-month trailing CPI remains close to 4.1%, far from the Fed's 2% target. This persistent inflationary pressure suggests that the Fed will need to maintain elevated borrowing costs for longer than previously anticipated.
Market Overview: -Rokos Capital Management, a leading macro hedge fund, predicts the Federal Reserve will hold off on interest rate cuts in 2024. -This view contradicts market expectations of two rate cuts this year.
Key Points: -Rokos Capital's Richard Tang cites the upcoming presidential election and persistent inflation as reasons for the Fed's cautious stance. -Tang criticizes central banks' reliance on forward guidance and economic data, highlighting the current disconnect between CPI reports and policy decisions. -He expresses concerns about inflationary policies under either potential presidential administration and the uncertainty surrounding trade actions.
Looking Ahead: -Rokos Capital's outlook suggests a longer period of elevated borrowing costs, potentially impacting economic growth. -The firm emphasizes the need for a new approach to policymaking, acknowledging the limitations of traditional economic models in predicting inflation. -With significant assets under management and a strong performance year-to-date, Rokos Capital's perspective carries weight in the financial markets.
Fed officials have already pushed back expectations for the first interest-rate cut, citing disappointing inflation prints in the first quarter. Tang also mentioned that potential policies under either presidential administration could prove inflationary, with particular uncertainty surrounding tariff actions under a possible Trump administration. This adds another layer of complexity for central banks in pricing forward policy action.
Tang’s comments resonate with recent remarks by Citadel founder Ken Griffin, who asserted that neither Donald Trump nor Joe Biden are likely to reduce US Federal spending, a critical factor in controlling inflation. Tang concluded by stating that traditional econometric models are less effective in the current regime, as the mechanisms driving inflation remain elusive. Rokos Capital Management, led by billionaire Chris Rokos, has seen significant success this year, with the fund gaining 20% and managing assets worth over $17 billion.
This article was originally published on Quiver Quantitative