To prevent chaos from being wreaked on markets, the US Federal Reserve should increase interest rates immediately, according to Stanley Druckenmiller in an interview with CNBC on Monday.
Stanley Druckenmiller, the founder of Duquesne Capital Management, added that if the Federal Reserve has a golden opportunity to raise interest rates, its now, as the move would not significantly impact the current financial conditions.
Druckenmiller has always been vocal about his criticisms against the central bank’s policies as the Fed keeps interest rates close to 0%. Last July, he stated warnings at Institutional Investor and CNBC’s Delivering Alpha conference regarding the possible long-term risks of having easy monetary policies.
His tone was similar during the Monday interview, and continued to contend that waiting for more time to increase rates also dramatically increases the risks for a negative impact on the economy of the country. Druckenmiller believes that increased rates would slow down the quick upward increase of corporate debt, adding that markets can withstand an increase if only for basis points of 25 to 50.
The financial mogul also stated his “positive outlook” and encouragement by the testimony given by Federal Reserve Chairman Janet Yellen before the Congress last week, where she clearly intimated that June is on the table for tightening monetary policies.
Druckenmiller also talked about his investing choices and the potential effects of a “Grexit” during the interview. His interest in monetary policy was spurred on by his large exposure in Europe and Japan. He is an admirer of the quantitative easing program in Europe, making the entire Continent’s stocks more appealing.
Druckenmiller added that what the US should learn from Europe’s QE is that it will inflate financial asset prices, so he opted to lengthen his exposure in Europe and in Japan, instead of in the United States.
He further intimated that the indefinite possibility of a Grexit—a Greek exit—from the Euro zone has already been incorporated into several European markets. Although the Euro slid against the Dollar, Druckenmiller said that it still bodes well for several European stocks. The common currency traded $1.12 Monday, and fell 20% against the US dollar last year.
Druckenmiller noted that BMW, Volkswagen and other cyclical stocks could receive a Euro boost, and also threw a hint on Warren Buffet’s confidence on IBM. He also believes that the “secular problem” at IBM won’t be resolved soon.
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