Business icon Ken Langone blasts the Fed for letting inflation run riot - and warns a financial crisis seems inevitable
REUTERS/Rick Wilking
- The Fed's sluggish interest-rate increases have led to out-of-control inflation, Ken Langone said.
- Home Depot's billionaire cofounder warned a "severe financial crisis" appears unavoidable.
- Langone urged the Fed to rapidly hike rates until it crushes inflation, even if unemployment surges.
The Federal Reserve missed the mark by not crushing inflation early on — and now it's courting an economic catastrophe, Ken Langone told Fox Business on Wednesday.
"I would classify the Fed as 'the gang that can't shoot straight'," the billionaire investor and Home Depot cofounder said, nodding to a 1971 crime-comedy film about bumbling gangsters in Brooklyn.
While US inflation was already running at more than twice the central bank's 2% target in 2021, policymakers delayed raising interest rates until March last year, in the belief that the price pressures were a temporary byproduct of the economy reopening after the pandemic. It should have hiked rates earlier and faster to stamp out price growth, Langone argued.
"It's now out of control," he said. "Frankly, I don't know how you avert a serious financial crisis where we are right now."
"If and when the big crash comes, it's not going to be pretty," he added.
Inflation spiked as high as 9.1% last year, spurring the Fed to lift rates from almost zero to upward of 4.5% today. Higher rates typically cool price growth because they raise borrowing costs and encourage saving over spending. Yet they can also pull down asset prices, temper demand, and fuel unemployment, increasing the risk of a recession.
"Maybe we're going to put 2 million people out of work, but I don't know any way around dealing with a problem of inflation, and the tragedy of what comes from inflation," Langone said. He labeled it "the most regressive of all taxes ever," as the poorest people suffer the most from price increases.
Langone hammered home the need to "snap the back of inflation." He called on the Fed to raise rates more aggressively until the threat recedes.
The veteran financier also shrugged off fears of an upcoming stock-market crash, and recommended investing in high-quality business for the long run. He noted his average holding period is 41 years, and touted Home Depot, Eli Lilly, and Yum Brands among his core positions.
"Bad times come and bad times go," he said. "My advice to people is own great companies, great managements, strong balance sheets, a history of periodically raising dividends — and go fishing."