"And if that weak growth starts to translate into a rising savings rate, you could easily end up [going] into a recession and one that's going to be difficult to deal with," he added.
In response to inflation hitting a 40-year high last year, the Fed has hiked interest rates from almost zero to north of 5%. Higher rates typically spur consumers to save instead of spend, eroding demand for companies' goods and services. Employers react by laying off workers, which raises unemployment and reduces spending further, cooling the economy and relieving upward pressure on prices.
Higher rates should eventually take their usual toll, potentially causing a recession and likely weighing on asset prices, Jensen said. Yet the S&P 500 has gained 16% and the tech-heavy Nasdaq Composite has"The Fed seems a little bit more realistic than the markets do on what it's going to take," he said about squashing inflation."To get an equity rally from here, you have to have lower rates fairly quickly into a world where earnings are pretty good.
Jensen also predicted inflation would trend above the Fed's 2% target going forward, limiting the central bank's ability to cut rates when growth and employment are under pressure. However, the early backer of ChatGPT-creator OpenAI acknowledged that machine-learning tools could