Why Ken Langone thinks the Fed is unsuitable and inflation will keep

Billionaire businessman Ken Langone told CNBC on Wednesday that he expected the US economy to be hit by higher-than-usual inflation for longer than usual than the Federal Reserve expects.

In an interview on Squawk Box, the co-founder of Home Depot said that both raw material and labor shortages resulted in increased consumer prices during the economic re-opening of the pandemic. Now the potential for additional government spending in the trillions of dollars is worrying, Langone said.

“I think you’re going to take an incandescent fire and throw a five-gallon gas canister on it. The flames will be so high it will be incredible, ”Langone said. “I don’t think this is temporary. I don’t think this is temporary,” he added, referring to Fed chief Jerome Powell’s longstanding opinion on recent inflation hikes.

The Fed chief will hold a press conference at 2:30 p.m. ET, about 30 minutes after central bankers close their two-day July meeting and make their latest policy statement.

Powell and other central bank officials have been forecasting for months that inflation will pick up as Covid restrictions wear off and consumers begin to engage in economic activities that they disrupted during the pandemic, such as travel. This, along with supply chain bottlenecks that also resulted from the health crisis, created a situation where prices would rise faster than normal, they warned.

That’s exactly what happened. Most recently, the Department of Labor’s consumer price index rose as fast as it has been in more than a dozen years, up 5.4% year over year in June.

The question now arises as to whether the inflation rate will pull back in the direction of the Fed’s target of an average of 2% or whether the central bank will have to use monetary policy levers to dampen price pressure.

At a press conference later Wednesday, Powell admitted that inflation “has been well above our 2% target” in recent months. It is “expected to be a few months above our target before we think it is nearing our target again,” he added.

Even so, the Fed chief said the labor market had “some ground to cover” before the central bank believed the economic recovery had made enough headway.

Powell, who appeared before Congress earlier this month, said “a perfect storm with high demand and low supply” ignited inflationary pressures. “If we don’t think there will be a multi-year, year-long shortage of used cars in the United States, we should consider this temporary. We very much think it is,” Powell said, alluding to the role that used is – Car prices have played at inflation levels that were hotter than predicted.

For his part, Langone focused on the Democrats’ budget proposal of $ 3.5 trillion. The longtime Republican financier said he was on board the smaller bipartisan infrastructure proposal that Congress is currently negotiating. America definitely needs to improve its roads and bridges, he said, adding that given the uncertainty in the early stages of the pandemic, it also supported last year’s multi-trillion dollar Covid relief packages.

But Langone said the Democrats’ budget proposal, which would, among other things, create a national paid family and sick leave program, is too expensive at a time when too many dollars seem to be too little for goods. Many companies have already raised prices to offset the higher wages they started paying to attract workers, Langone said.

“The fact is… when this hyperinflation happens, it will be too late to know. Maybe you’re going to need this $ 3.5 trillion thing, but not now. Not now. Take a look at it. See what we did, what … we set up, “Langone said.

“What I’m saying now is, please, please, Congress, be careful. You’re playing with fire. If you’re wrong, the little guy you’re supposed to be helping will be punished.” seriously, and that’s going to be too bad. “

– CNBC’s Jeff Cox contributed to this report.

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