The Federal Reserve will likely taper its asset purchases faster than the markets expect, and interest rates will rise more quickly as well, according to Greg Jensen of Bridgewater Associates, the world’s largest hedge fund.
“The economy is going to pull the Fed,” Jensen, the firm’s co-chief investment officer, said in a Bloomberg TV interview on Thursday. “There’s certainly inflation well above their target and we think it will continue to accelerate if the Fed doesn’t move.”
The central bank’s accommodative monetary policy in the face of robust growth presents opportunities for investors, Jensen said. Bridgewater favors shares of companies with cash flows that will move with the economy, he said. The firm added Coca-Cola Co., Walmart Inc. and Johnson & Johnson, among others, in the second quarter, according to its 13F filing released earlier this month.
“The biggest arbitrage you can take in the world right now is take what the policy makers are giving you,” Jensen said. “They’re giving you incredibly low interest rates relative to high nominal GDP growth.”
Fed officials have highlighted increased risks from the delta variant, which could affect the pace of economic recovery from the pandemic and alter its willingness to scale back its bond buying.
Two Fed officials made hawkish comments this week urging the central bank to start tapering its asset-purchase program. Fed Chair Jerome Powell has struck a more patient tone and will give his take on the policy outlook Friday in a virtual speech at the annual Jackson Hole symposium.
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