Recession risks: Major economic indicator, Ken Griffin say downturn is ‘unfolding’

A major economic indicator now suggests the United States is headed for a recession, and billionaire Ken Griffin, the founder of the global investment firm Citadel, has said “the setup for a recession” is “unfolding” in the country’s current economy. 

Griffin also characterized a series of recent Federal Reserve rate hikes as “having surgery with a dull knife” during a speaking event Tuesday.

American consumers “were handed enormous amounts of money by the government” during the beginning of the COVID-19 pandemic and “saved trillions” as they worked from home and refrained from eating out, travel and other purchases, the billionaire said. 

“Now, the flip side of this is the US government spent about $5 trillion over the pandemic … And that money that went to American consumers has been coming back into the economy post-the vaccinations, post-the reopening of the economy,” Griffin said.

The sudden surge in spending contributed to inflation, which in turn put new strain on consumers.

Consumers are still spending excess savings, but that’s expected to come to an end toward the end of this year, he said.

“And that makes next year, late this year, a very interesting transition point, as this post-pandemic orgy of spending comes to an end,” Griffin said.

Yield curve hits sharpest point in decades

The “yield curve,” a closely-watched economic metric, is now at its steepest since 1981, Bloomberg reports. That year, the Fed hiked rates to try and control the Great Inflation, but tightened monetary policy sparked a severe recession.

The Fed has been tightening monetary policy to try and tamp down the recent historic inflation and avoid a recession as the country weathers the fraught economic landscape. 

Interest rates were upped seven times last year and once last month.

Fed Chair Jerome Powell said Tuesday that rates may need to be aggressively hiked again after the central bank moved to slow them last year, when inflation appeared to be cooling.

Powell told members of the Senate Banking Committee on Tuesday that the economic cooling noted in recent months may have begun to reverse — and that the Fed would be willing to “increase the pace of rate hikes” if necessary.

But Griffin characterized the central bank’s use of interest rate hikes to try and grapple with inflation as “like having surgery with a dull knife.”

How many Fed rate hikes are too many?

“The interest rate tool as a means to control inflation is a – it’s like having surgery with a dull knife. It’s a really difficult tool to get the job done with,” Griffin said.

“Because you hit the housing sector, you hit the manufacturing sector, you hit parts of the economy that have a very high sensitivity to interest rates,” he said.

“And you tend to leave the rest of the economy relatively untouched. So the Fed doesn’t have as much impact with their tool as you might hope,” he said, adding that the central bank is “in uncharted territory.”

Griffin said he’d counsel Powell to “say less” and simply tell American consumers that “we’re going to put the inflation genie back in the bottle” and “do what it takes” to deal with the economy, even if that means consistently raising rates.

“Because every time they take the foot off the brake, or the market perceives they’re taking the foot off the brake, and the job’s not done, they make their work even harder,” Griffin said of the central bank.