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- Jeremy Grantham told Bloomberg he still sees a US recession on the way.
- High interest rates will keep dragging on financial markets and a downturn could last into 2024.
- "I suspect inflation will never be as low as its average for the last 10 years."
Jeremy Grantham thinks a recession is still on the way, and he doesn't have confidence in the Federal Reserve to steer the US economy toward a soft landing.
In an interview with Bloomberg, the Wall Street veteran and co-founder of GMO said higher-for-longer interest rates will end up delivering pain to markets, and that the central bank has little ability to change things.
"The Fed's record on these things is wonderful," said Grantham, who previously predicted the financial crises in 2000 and 2008. "It's almost guaranteed to be wrong. They have never called a recession, and particularly not the ones following the great bubbles."
In April, he predicted a sweeping market decline and a brutal recession. He advised against holding US stocks and slammed the Fed for creating asset bubbles.
Looking ahead now, Grantham doesn't see a return to the previous era of loose monetary policy and cheap borrowing costs. The repercussions of higher interest rates, he explained, will begin to seep into corners of the market and drag them down and spark a recession "running perhaps deep into next year."
A stock market decline would also accompany a downturn, he said. Earlier this year, Grantham forecasted the S&P 500 could drop as much as 50%.
In any case, Grantham says Jerome Powell's goal of 2% inflation may be difficult to reach.
"I suspect inflation will never be as low as its average for the last 10 years; that we have reentered a period of moderately higher inflation and, therefore, moderately higher interest rates," Grantham said. "In the end, life is simple. Low rates push up asset prices. Higher rates push asset prices down. We are now in an era that will average higher rates than we had for the last 10 years."