Druckenmiller is worried about inflation, says it could hit 10% in coming years

Published Wed, Sep 9 20208:37 AM EDTUpdated Fri, Sep 11 202010:28 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

(This story is for CNBC Pro subscribers only). Billionaire hedge fund manager Stanley Druckenmiller warned on Wednesday that actions by the Federal Reserve have raised the chances for inflation and deflation. Druckenmiller, the chairman and CEO of the Duquesne Family Office, said on CNBC's " Squawk Box " that the central bank's new willingness to let inflation run hot posed a risk to price stability. "For the first time in a long, long time, I'm actually worried about inflation," he said. Druckenmiller's comments come two weeks after Fed Chair Jerome Powell annuonced that the central bank would allow inflation to run above its 2% target for a period of time if it had previously been under that level. Inflation was consistently less than 2% during the recovery from the financial crisis despite historically low interest rates from the Fed. Druckemiller said that did not worry him, and inflation being consistently at 1.6% was "like they hit a home run." However, the Fed's commitment to raising prices could lead to a double-digit inflation environment, the investor warned. "We actually have the chairman of the Federal Reserve with a $3.5 trillion deficit out lobbying Congress to do more spending and guaranteeing those of us on Wall Street that he'll underwrite it. I think it's dangerous. I think we could easily see 5% to 10% inflation in the next four or five years," Druckenmiller said. While Powell has repeatedly said that more fiscal help may be needed as the U.S. economy recovers from the pandemic-induced recession, he has declined to publicly comment on particular pieces of legislation or policy proposals, saying that is not the Fed's role. Druckenmiller said the risk to price stability ran in both directions, with a chance for deflation of 3% or 4% in the years ahead, adding that the chances of the Fed hitting the 2% "sweet spot" have decreased because of recent moves. "I cannot find a deflation that happened because you were near the so-called zero bound. Every one was preceded by an asset bubble, and he's created this giant asset bubble. So ironically, he's raised the two tails," he said. Druckenmiller's largest holdings at the end of the second quarter were Microsoft and Amazon, according to a securities filing. The fund also made new investments in Carnival, Starbucks, Wells Fargo and JP Morgan during the period.

Stanley Druckenmiller

Anjali Sundaram

(This story is for CNBC Pro subscribers only).

Billionaire hedge fund manager Stanley Druckenmiller warned on Wednesday that actions by the Federal Reserve have raised the chances for inflation and deflation.

Druckenmiller, the chairman and CEO of the Duquesne Family Office, said on CNBC's "Squawk Box" that the central bank's new willingness to let inflation run hot posed a risk to price stability. "For the first time in a long, long time, I'm actually worried about inflation," he said.