The Federal Reserve should "stick to its guns" with keeping monetary policy tight to tame persistent inflationary pressures, Stanley Druckenmiller, chairman and CEO of Duquesne Family Office, said Wednesday at the CNBC Delivering Alpha Conference in New York City.
The central bank was wrong with its inflation forecasts, the famed investor said, noting that it made a mistake in calling inflation transitory after the COVID-19 pandemic hit the world in 2020, and thus outsized fiscal stimulus packages took effect shortly thereafter.
But now the Fed has "owned up to their mistake" after its aggressive pivot to hawkish monetary policy earlier in 2022 from its "easy money" regime to bring down inflation that is running at around a four-decade high, he said.
Given the troubled macroeconomic environment, the risk-reward profile for any assets is "difficult" now, Druckenmiller said. His gloomy remarks come as bond prices keep seeing downward pressure, with the 10-year treasury yield (US10Y) flirting with its highest point since the height of the great financial crisis in 2008. For stocks, the S&P 500 index (SP500) fell to its lowest level in almost two years on Tuesday.
In response to the Bank of England's earlier move to start temporary purchases of long-dated bonds and delay quantitative tightening amid market turmoil, "you don't cure inflation with an inflationary act, Druckenmiller said. That's on top of the U.K. government's proposal to cut taxes and boost spending.
The U.K.'s central bank is creating long-term problems by easing off the monetary tightening brakes even as it seeks to bring down persistently high inflation, he added.
In June, Druckenmiller said bear market has a "ways to run."