(Bloomberg) - Federal Reserve Chair Jerome Powell will struggle to contain rising inflation, and a variety of assets will face challenges as a result, Paul Tudor Jones said.
“He’s got a lot of catching up to do,” the hedge fund manager said Tuesday in an interview on CNBC. “We’re getting ready to see a major shift, and it’s going to have a lot of consequences for a variety of asset prices.”
The Fed’s recent discussion of quantitative tightening reflects its views on the urgency of inflation, according to Jones, chief executive officer of Tudor Investment. Consumer prices rose 6.8% in the 12 months through November, prompting the Fed to consider raising interest rates earlier and more quickly.
The inflation trades and those that have performed best since March 2020 will be challenged and will probably do the worst on a relative basis, Jones said. He added there’s a discrepancy between the strength of the labor market and where rates and equity multiples currently stand.
“I think it’s going to be tough sledding for the inflation trades of the pandemic,” he said.
Commodities appear “incredibly undervalued” relative to financial assets, said Jones, who expects them to outperform financial assets by a wide margin as the tightening cycle unfolds.
The real question will be whether the Fed unwinds what by many appearances is a “financial bubble” without “huge negative economic consequences,” he said.
“I’m nervous because we are at such lofty heights,” Jones said.