Pandemic-related outperformers could hurt the most from a Fed tightening cycle, said the billionaire hedge fund manager in an interview with CNBC.
Tudor Investment founder and CIO Paul Tudor Jones says that the US Federal Reserve’s monetary policy as outlined in the recently released FOMC minutes will probably hurt some assets more than others.
The billionaire trader observed this during an interview with CNBC on Tuesday.
The hedge fund manager also noted that Fed Chair Jerome Powell has his work cut out as the central bank moves to rein in rising inflation. In his opinion, Powell has “a lot of catching to do” in terms of dealing with the inflation challenge.
Goldman Sachs said on Monday that it expects the Fed to raise interest rates four times this year, while the IMF warned that the quantitative tightening would impact emerging economies.
Tudor, on his part, sees the Fed’s move as a “major shift” for the markets and one likely to see several asset prices hit.
Talking about the outlook for trades that flourished during the pandemic, the legendary told CNBC’s ‘Squawk Box’:
"I think it's going to be tough sledding for the inflation trades of the pandemic. Things that performed the best since March 2020 are probably going to perform the worst as we go through this tightening cycle."
Tudor believes the US economy is in a stronger position than any other in the world at the moment. However, he notes that the probability of a negative impact on the economy as the Fed unwinds its bond purchases makes him nervous.
"If you were going to make a bet on the economy for the future, clearly you'd bet it here in the United States rather than any other country in the world," he said. "Yet, I'm nervous because we're at such lofty heights."
The Just Capital co-founder also weighed in on the potential performance of commodities versus financial assets. He said commodities will end up massively outperforming financial assets, adding that the asset class is currently "so incredibly undervalued."
Tudor’s comments about the Fed’s policy came on the day the Chair Jay Powell testified on Capitol Hill. Powell was re-nominated by President Joe Biden last year and his appearance before the Senate Banking Committee is part of the process of considering his re-nomination.