- Leon Cooperman warned of persistent inflation, higher interest rates and a potential recession.
- In an interview with Insider, the billionaire investor blamed senseless fiscal and monetary policy.
- Cooperman called on the US authorities to sort out their actions before they plunge the country into crisis.
Short-sighted officials paved the way for persistent inflation, higher interest rates and a full-blown recession, Leon Cooperman said in an interview with Insider this week.
The billionaire investor complained about years of “very inappropriate” monetary and fiscal policy, saying it had driven demand to unsustainable levels and caused a massive increase in government debt.
Near-zero interest rates, reckless government spending and excessive bond buying overheated the economy and sent prices soaring last year, prompting the Federal Reserve to quickly raise borrowing costs and destabilize the system, Cooperman said.
A former executive at Goldman Sachs’ asset management arm, who turned his Omega Advisors hedge fund into a family office in 2018, said the jarring shift from quantitative easing (QT) to monetary tightening (QT) combined with other factors hampering development laid the groundwork for economic collapse.
“I believe that the price of oil, a strong dollar, QT and the Fed will push us into a recession,” Cooperman said. Parts of the economy are already contracting, but the sheer scale of public spending has delayed the broader deterioration, he continued.
Cooperman also sounded the inflation alarm, saying the pace of wage increases, a key driver of price increases, was unlikely to slow much given the tight U.S. labor market. Inflation has fallen from a 40-year high of over 9% last summer to below 4% in recent months, but that is still almost double the Fed’s target rate of 2% annually.
An experienced investor who lives frugally and has pledged to devote virtually all of his fortune to good causes gave several examples of his personal experiences with inflation. He told Insider that one pretzel at Yankee Stadium costs $13 today, whereas when he was growing up in the Bronx, he could buy two for a nickel. Moreover, he recently wanted to trade in the Hyundai he bought for $54,000 in 2017 for a new model, but walked away when the dealer quoted him a price of $104,000.
As prices continue to rise, Cooperman suggested that interest rates, which the Fed has raised over the past 18 months from virtually zero to more than 5%, could continue to rise. He added that the yield on benchmark 10-year U.S. Treasuries could exceed 5% and even reach 6%.
Higher rates encourage saving relative to spending and increase borrowing costs, which can limit inflation. But they can also lower the prices of assets such as stocks and houses, reduce corporate profits and increase the risk of recession.
Cooperman urged Washington to get its finances in order or face the consequences. The national debt rose to an unprecedented $33.6 trillion, the budget deficit increased by almost a quarter to $1.7 trillion in the fiscal year ending in September, and the U.S. government’s interest payments topped $659 billion during that period, almost twice as much than in fiscal year 2021.
“We have to get our house in order or we will face a crisis,” Cooperman said.
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