Icahn Enterprises founder Carl Icahn has warned people that the U.S. is still at risk of facing a bearish market despite the recent rally in stocks.
Following the publication of inflation data last week, which showed a lower-than-projected inflation rate, the U.S. stock market surged the highest in two years. Investors are hoping for the Federal Reserve to pivot from its current tight monetary policy to lower the risk of a recession.
"I am still quite bearish on what is going to happen," Icahn said.
Icahn insisted that the Fed must exert more effort to control inflation. The businessman explained that consumer prices, which grew 7.7 percent on a year-to-year basis in October, would not go down soon. He argued that the Fed needed to keep raising the benchmark interest rates, or things would “be worse in the future.”
Early into 2022, the benchmark interest rates were close to zero percent. The Fed started raising interest rates in increments in March. Following the November FOMC meeting, the interest rates range from 3.75 to four percent. Analysts have predicted that the rates will peak at more than five percent.
Icahn proposed factors other than rate hikes that would contribute to the bearish market. He listed the “lackluster” corporate earnings in 2022, increasing corporate debts, economic pressures on households and the Russia-Ukraine war.
As a long-time investor, Icahn said he was leaning toward short positions in the stock market, especially against stocks indexed in S&P 500. The businessman added that stock prices for major tech companies were overvalued in the current market.
The most recent case in the tech market that drew Icahn’s interest was Elon Musk’s Twitter purchase. He applauded Musk for taking over the company, saying he agreed with the Tesla founder about the restrictions on Twitter.
Icahn also discussed the crypto market, which experienced a prolonged winter this year due to the macroeconomic situation. He explained that the crypto crash due to FTX’s collapse last week could influence other asset classes. Icahn also said he “never bought any crypto” and even bet against the risk assets “once or twice.”
Fed’s future monetary policy
Economists mostly agree that the Fed may consider reducing its rate hike size in the upcoming FOMC meeting. Fed governor Christopher Waller, however, said that a lower hike size should not be seen as the central bank "softening" its commitment to battle inflation. Instead, Waller said that people should focus on the “endpoint.”
“Quit paying attention to the pace and start paying attention to where the endpoint is going to be,” Waller said. “Until we get inflation down, that endpoint is still a ways out there."
Despite the recent inflation data showing signs that the economy has cooled down, Waller said it was only a data point with other parameters to consider. The Fed needs to see inflation data supporting each other at a continuous pace before considering pausing the rate hike. The central bank governor argued that the Fed was on the right track because, so far, it had not “broken anything.”
Stakeholders, nevertheless, have voiced concerns about the Fed’s monetary policy. Analysts also warned about the impact of monetary tightening on the employment rate in the U.S. Sherrod Brown, the head of the U.S. Senate Banking Committee, also said that millions of Americans could lose jobs amid high living costs if the Fed is not “careful.”