SOTS+ Citadel CEO Ken Griffin 1/30/24

Carl Quintanilla (0:00)

Let's get down to the MFA Network Conference in Miami where Leslie Picker is sitting down with Citadel's Ken Griffin. Let's listen in live.

Leslie Picker (0:06)

Well, thank you very much, Ken. Thank you, MFA and Brian, for hosting and for allowing us to have this conversation. We were saying before we came on, this is such a good day to have this conversation. You've got the S&P 500 at a record high yesterday, kind of, you know, mixed picture today.

But in September, you said that you were anxious about the markets, that it was kind of in the seventh or eighth inning. Are you still feeling that way? Do you feel like things are kind of too expensive at these levels?

Ken Griffin (0:37)

So first of all, welcome to Miami. And, and I know Leslie's very happy because it's 70 and sunny today.

Leslie Picker (0:47)

Yeah.

Ken Griffin (0:49)

So it's a good day to be here to talk about the market, which is reaching all time highs.

And we do look like we have put some of the economic anxiety of Q4 behind us, good payroll numbers, good GDP growth, and most importantly, inflation is moderating at a pace that's frankly better than the market anticipated. We may get gold deluxe, we may get a soft landing or even no landing. We may be looking at a moment in time where inflation this year is low twos. The Fed can start to cut rates come this summer, and we will see unemployment touch up a little bit, but the overall economy looks pretty damn good right now. And I think this is a real change in mindset from where we were September, October last year.

Leslie Picker (1:35)

So you think essentially mission accomplished, no more rate hikes, because I know you kind of left open that possibility in the fourth quarter that there was potentially another rate hike to come.

Ken Griffin (1:46)

I think there was a possibility at the start of Q4 last year that we could see it on the rate hike.

Leslie Picker (1:51)

And now you feel like that's been taken off the table.

Ken Griffin (1:54)

Probably not going to happen. I mean, obviously, you could have an exogenous shock like a oil price shock that would put inflationary pressures back into the economy.

So there's possibility, but right here, right now, and we deal with the reality of the present, is inflation is coming down, core inflation is coming down, and it gives the Fed the room to stop raising rates and potentially to start to cut come this summer.

Leslie Picker (2:17)

Do they need a recession to cut rates?

Ken Griffin (2:20)

So that's gonna be the real trick, is can they actually start to cut rates before we have a recession and walk out of the inflationary shock that we've been through as victors? Now, one of the things that's very different about this economic cycle the most is that we're still engaged in a reckless level of federal spending.

So that's creating a very different backdrop for the economy than any point in prior history. You know, at this moment in the economy, you'd expect the federal deficit to be close to two, 3%. In the Clinton days, we had a surplus when the economy looked like it does today.

But we're still spending at a rate of deficit spending of roughly 6%. So we have an economy that feels really good right now, but there is an aspect of this that it's gonna come on the credit card that our kids are gonna pay. And frankly, if you're 40 or 30, you're probably gonna pay the bill too when you go to retire in 25 years. This government spending has got to get in check. It's creating this bit of euphoria right now, but it will come with a hangover.

Leslie Picker (3:33)

And we'll get into politics in a little bit, but the idea of cutting rates, which the market has basically baked in at this point, at least as it pertains to the summer timeframe, doing that while there is so much fiscal spending, wouldn't that be inflationary?

Ken Griffin (3:51)

So that is inflationary. The combination of cutting rates and these very high levels of government spending are inflationary. The issue comes down to many of the shocks that caused inflation to go higher have been reverting.

So we're enjoying, in a sense, the inflation piece dividend that the energy shocks or food price shocks that hit the economy two years ago are reversing and helping to create an easier environment for the Fed to navigate. And then the labor market has definitely softened a touch from where we were 18 months ago. You're seeing companies ever so slightly back away from the pace of hiring, back away from the incredible increases in wage growth that needed to happen to attract employees. That's giving the Fed a little bit of help right now in terms of their battle against inflation.