David Tepper, founder and president of Appaloosa Management, recently addressed his concerns regarding the Federal Reserve’s approach to interest rates during an appearance on CNBC’s “Squawk Box.” Tepper cautioned that a too-rapid reduction in the federal funds rate might imperil the economy. This risk is particularly worrisome if inflation remains elevated.
As he has in the past, Tepper voiced his concern that the Fed may be over-eager in cutting rates. He warned that if the central bank were to start prematurely cutting rates before restoring full control over inflation, demand might break out. This surge in demand will likely exceed available supply. This kind of situation might be just enough to bring price pressures back alive again, obfuscating a pretty simple monetary/fiscal landscape.
“I don’t love the multiples, but how do I not own it?” Tepper remarked, reflecting his complex views on current market valuations. His insights come at a crucial time, as President Donald Trump is vocally urging the Fed to pursue fast and deep interest rate cuts. This moment is heavy with urgency and hope. Tepper, we think, is calling for a more sober approach.
“My view has been that one easing or two easings or even three easings don’t matter because we’re still in a little restrictive territory with a little bit too high inflation, even without the tariff-induced inflation,” he explained. In light of the challenges posed by economic uncertainty, Tepper advocates for the Fed to keep a mildly restrictive policy in order to steer through stormy waters.
As Tepper elaborated, “Beyond that, you’re really risking a lot of things, a weaker dollar, more inflation and those sort of things.” His comments highlight the difficult balancing act the Fed must perform as it contemplates its monetary policy actions.
Even for the most seasoned of investors, there is still a need for some calming of the stormy market. He cautions that beyond that, deeper cuts would be entering into “danger territory.” Tepper absolutely agrees that today’s economic conditions call for a slower, steadier pace of interest rate hikes. He cites tariff-induced inflation as a major force shaping this perspective.