Ken Griffin Warns Rising Energy Costs Will Lead To Global Recession
KELLY EVANS: Tensions between the U.S. and Iran reigniting over the past few days, although the cease-fire, according to U.S. officials, is still in place. Last month, Citadel's Ken Griffin warned, the Strait of Hormuz closure could trigger a global recession. Has his outlook changed since? Let's head to Beverly Hills to find out, where Ken Griffin joins us from the Milken Global Conference in an exclusive interview with our very own Sara Eisen. Hi, Sara.
SARA EISEN: Hi, Kelly. Good to see you here from the Milken Conference. And with me is Ken Griffin, the founder and CEO of Citadel. We just got off stage together, and here we are on CNBC. It's good to have you, as always.
KEN GRIFFIN: Great to be here, Sara.
EISEN: So, Kelly started off with talking about some of the risks as the Strait of Hormuz has remained closed. And there are questions about when and how this war ends and how investors should be digesting all of it. How are you thinking about it?
GRIFFIN: So we're very focused on how long the stalemate will persist for. And the United States has done an extraordinary job from a military perspective of containing the Iranian military. Unfortunately, we have yet to reopen the straits. And that's going to take a period of time that's just very hard to estimate or to determine. The upshot, if the straits remain closed for another six, nine, 12 months, energy prices around the world will go materially higher. It will push the world into a global recession. The United States, because of our energy independence, will fortunately be largely shielded from the worst of it.
EISEN: So does the market action make sense to you, the fact that the stock market is back to all-time highs?
GRIFFIN: Look, the stock market is looking at the incredible earnings success that American companies have enjoyed, another great earnings period so far, American businesses across virtually every sector putting up record profits. The stock market is very focused on the here-and-now success story being written across American firms.
EISEN: But do you think it's underestimating risk of inflation, consumer demand?
GRIFFIN: So, inflation, we have now lived with inflation for six years. It's been a long journey on the inflation front. And the good news is, is that inflation is not accelerating in a meaningful way at this point in time. But it's still clearly above target. I think, if you look at the state of the labor market, you look at the inflationary risk created by the war, the ability for the Fed to cut rates is certainly diminished in this environment. But the market is really focused on the continued success story that American companies have had in growing their bottom line.
EISEN: Do you think that, the longer this last, global recession, but not U.S. recession?
GRIFFIN: So we end up in a global recession. Clearly, that's going to hit U.S. growth prospects, may push the United States into a recession. But of all the countries in the world, we will have one of the greatest stories of resilience. The real problem is a country like Pakistan or Bangladesh, which has lost both access to the long-term fuel sources they have had from the Middle East and the high costs they will incur to replace that lost energy. It's the developing countries that are really going to face the brunt of the pain from the war in the Middle East.
EISEN: Yes. Do you think the president is doing the right thing with this war?
GRIFFIN: With this war, I believe the president has done a great service to humanity by curtailing and containing Iran's nuclear ambitions. The combination of the strikes on their nuclear facilities last year, this strike or this war this year has set back Iran's nuclear ambitions by years, if not a decade or more. And a nuclear-free Middle East is really important both to regional security and ultimately to the security of Western countries, Europe or the United States, which could be impacted by a nuclear warhead in the wrong hands. And I think we should be very thankful that the president has really worked hard to contain the nuclear ambitions of the Iranian people.
EISEN: And yet it is so unpopular in this country.
GRIFFIN: I don't think the president has really made his case to the American people properly, that this is about not only regional stability in the Middle East, which has important ramifications for the entire world, but is also important to Western society's safety. He should have made that case, I think, much more aggressively, much more publicly at the start of or before the start of this round of escalation with Iran.
EISEN: Yes, to the American people, but also to the European leaders, it seems, as well.
GRIFFIN: Well, the American people, I think, would listen to the president more than the European people would. And Europe needs to help carry some more of the water on these important geopolitical issues.
EISEN: You think it's a mistake that they're not helping more open the straits?
GRIFFIN: Oh, absolutely. I mean, Europe has depended upon American military strength and capability since World War II. We helped maintain stability and peace during the Cold War. Europe has benefited from the Americans' willingness to spend on their defense. The Europeans should be there for us in a more profound way in this moment in history.
EISEN: So I do wonder if you see, I mean, because it's unpopular, because gas prices are high, because we have been in this sort of long period of inflation now, if you see the political ramifications, we're heading into the midterm elections, and whether that presents a risk to you.
GRIFFIN: So there's no doubt, with the high inflation that we had during the Biden administration, and much higher than inflation that we're seeing today, that the American people and, in particular, retirees and those who are living on fixed savings accounts, have really seen their purchasing power diminished.
EISEN: Yes.
GRIFFIN: I mean, we took away from people's retirements in a profound way due to the economic policies of the Biden administration. Now Trump is president. People want to see that return to having more purchasing power at the cash register. If you look at the price of eggs, you look at the price of fast foods, you look at the price of housing, look at the price of almost anything in life—
EISEN: It's gone up a lot.
GRIFFIN: It's materially higher than it was just seven years ago. And so, when gasoline prices go higher, I think it's really triggering the American people that the inflation genie is back out of the bottle again. And I think Trump has to deal with that reality that the American people have just had it when it comes to inflation. And, unfortunately, I think he's being disproportionately blamed for the diminution in purchasing power, the story of which was really written during the pandemic days of the Biden administration.
EISEN: And all the money that got injected into the economy afterwards. So, I mean, do you see the Democrats taking Congress?
GRIFFIN: So I, it's almost a certainty the Democrats will take the House. That's the nature of almost every midterm election cycle, is the House seats swing in the, in favor of the opposing party.
EISEN: Sure.
GRIFFIN: The Senate will be the big battleground in this midterm. The Republicans will almost certainly keep the Senate, but that will be the political battleground in this election cycle.
EISEN: You mentioned that with the, in the inflationary context, the Federal Reserve, markets priced out rate cuts for this year. Do you think there's a risk of rate hikes in this kind of environment?
GRIFFIN: There's always a risk of rate hikes when inflation has gone above target, and it's been persistently above target now, and the labor markets are strong. And there's signs that the labor market weakness that we worried about just three or four months ago is largely dissipating. If we do see the labor market strengthen, we do see prices continuing to be, or inflation above target, I think you could have a conversation about hikes later this year, not my expected case. But a stronger labor market would certainly open the door to that possibility.
EISEN: Even under a new Fed chair, Kevin Warsh, who looks likely to be confirmed and is coming in appointed by a president who has made it very clear he wants lower interest rates?
GRIFFIN: Look, I think President Trump made a great choice with the nomination of Kevin. I think Kevin's incredibly qualified to do the job. And I think, most importantly, I think he is well-versed in economic policy and theory. I think he will make the decision that's the right decision for the American people when called upon to do so.
EISEN: The independent decision?
GRIFFIN: The independent decision.
EISEN: You have raised independence questions about the Fed recently. I mean, the president, just this week, he posted a meme of Jay Powell falling into a dumpster.
GRIFFIN: Yes, I can't explain what happens between Jay Powell and the president. It just befuddles me. You know, I think Jay Powell—
EISEN: The president wants lower rates.
GRIFFIN: The president wants lower rates. But the president also wants to control inflation.
EISEN: Right.
GRIFFIN: And I think Powell's caught in between a rock and a hard place, to say the least.
EISEN: Should he have stayed on as governor? What do you think of that decision?
GRIFFIN: Look, I think, with the dynamics at play with respect to the DOJ investigation into Powell and the Fed, I absolutely understand Powell's decision to stay on to see this through from the vantage point of being on the Fed Board.
EISEN: You do?
GRIFFIN: I do.
EISEN: So that's probably why he did it.
GRIFFIN: And I was with a group of executives, about 300 corporate CEOs. And I will tell you they all applauded Powell for his maturity in grappling with the situation, his willingness to serve the American people, and the leadership that he has shown all of us during his time on the Fed.
EISEN: The other big theme that everyone's talking about here and that will impact our trajectory is A.I. and just where we are in the adoption of it and whether the trillions of dollars that is being spent right now will ultimately be worth it. What do you think?
GRIFFIN: So, here's what we know. We know that A.I. today is profoundly better than A.I. was just nine months ago. The rate of change within the A.I., the A.I. tool kit has been has been breathtaking—
EISEN: Fast.
GRIFFIN: In fact, has far exceeded even my thoughts as to how fast it could evolve. And I have a pretty long background in software development myself. So I think that most of us have been caught a bit flat-footed with the rapid rate of development that we have seen in A.I. Now, thus far, how much has it impacted the real economy? Modestly. But, but corporate America for the last few years has deeply embraced the use of technology, digitization, optimization to profoundly improve their businesses. The A.I. dialogue in the C-suite has really turned into, how do we reengineer our businesses to be digitally capable and digitally front-footed in a way that has markedly improved productivity and profitability in corporate America? So, although we have yet to see the real impact of A.I. in the bottom line, we're certainly seeing a meaningful impact of a more thoughtful use of technology on the bottom line across corporate America.
EISEN: OK, I have to ask you about New York City and what you're going to do after the mayor posted that video outside your apartment, one of your apartments in New York City, and demonized you, advertising his pied-a-terre tax. How'd you react to that when you first saw it?
GRIFFIN: I actually had to see it a second time, because, the first time, I couldn't believe what I was watching. And I will tell you, it took a moment to digest what I was watching. What really upset me about the video was the fact that it put me in harm's way. You know, he seems to have forgotten that the CEO of another American company was assassinated just blocks from where I live in New York. And to put any citizen in harm's way is just inappropriate for one of our political leaders. I have no longstanding fights or issues or dynamics between Mamdani and me. To turn me into a political puppet was just in poor taste, really poor taste. The tax itself, as a tax that discriminates against a narrow group of people, is also disconcerting. Our company's thinking about making a $6 billion investment in New York City.
EISEN: 350 Park.
GRIFFIN: Right? Are they going to now have a special tax rate for those that own office buildings who live out of state? Like, where's this stop in New York? New York's got a problem. New York has to put the spending back in control. They have got to show the people of New York City and New York state that the enormously expensive and large government that they have created over the last 30 years actually delivers value to the taxpayers.
EISEN: Are you going to go through with that building?
GRIFFIN: We probably will go through with the building when it's all said and done, but I got to tell you, it's a real topic of debate. The only decision that we have made with no regrets in the last few days is to expand the size of our office footprint in our new Miami headquarters.
EISEN: Just in the last few days, you made that?
GRIFFIN: Yes. We actually—
EISEN: In reaction to New York?
GRIFFIN: In reaction to New York. We filed the permit with the city of Miami. We have added several hundred thousand square feet of new space in our new building. We will add far more jobs in Miami over the next decade as an immediate and direct consequence of the mayor's poor decision here with respect to his posting of that video.
EISEN: I believe you met with Governor Hochul afterwards as well. What was that like?
GRIFFIN: That was, I will sum it up as no comment. I will sum it up as no comment.
EISEN: OK.
GRIFFIN: Sum it up as no comment.
EISEN: But you will probably go through with the building. I guess the question is, I mean, you—
GRIFFIN: Here's what's disappointing, right?
EISEN: Yes.
GRIFFIN: The comments from the governor's office after this was that Mamdani scored political points.
EISEN: A spokesperson said that, yes.
GRIFFIN: Wow, like, that's real leadership, Governor Hochul.
EISEN: Well, they're playing both sides, right?
GRIFFIN: I'm being as sarcastic as I could be here. What New York City needs and what New York state needs right now is a government who takes on the bloated, wasteful government that puts an incredible burden upon the lives of all New Yorkers. And with 1 percent of New York taxpayers paying 45 percent of all the taxes, the city is in a precarious position, if they make those who create value feel like they're best off moving their businesses and their lives to other jurisdictions.
EISEN: Is New York City different? New York, we have the best talent. We have the best everything. I mean, I know you left Chicago because of some of this stuff, but—
GRIFFIN: You know what? I used to hand politicians a photo album of Detroit. Why Detroit? Detroit was the most wealthy city in America per capita in the 1950s. Detroit was the powerhouse of our country.
EISEN: And then?
GRIFFIN: And then a photographer a few years ago did a phenomenal photo book of the carnage of New York City, the rotting buildings, the empty stages, the vacant and dilapidated homes.
EISEN: That's right. Yes.
GRIFFIN: It's an absolutely heartbreaking book to see. How is it that the most successful city in America wound up in bankruptcy and despair in just 50 years? I don't think any city should be so arrogant as to believe that it is immune to economic realities and to the hard, cold fact that when people that drive success are told they're not welcome or invited, that they will leave. We were in California.
EISEN: Yes.
GRIFFIN: They have a proposed—
EISEN: Yes.
GRIFFIN: Ballot initiative to create a wealth tax here in California.
EISEN: Yes.
GRIFFIN: Larry Page's child is now a classmate of my children in Miami and a substantial number of the business leaders in California have fled to Texas and to Florida and to other states in just a few months.
GRIFFIN: Now, people go, well, like, the progressive left goes, good riddance.
EISEN: Yes.
GRIFFIN: But who's going to pay the bills? And with them goes jobs. With them goes management experience. You know, what we forget is that very few people have the gifts to run these large, complicated businesses.
EISEN: Yes.
GRIFFIN: We need them at the helm of these businesses.
EISEN: Elections have consequences. Ken, thank you very much for speaking out on this and for all your candid thoughts on all these top-of-mind issues for investors and everyone else. Ken Griffin, thank you.
GRIFFIN: Sara, great to be here.
EISEN: Yes, Ken Griffin. Kelly, back over to you.
EVANS: Thank you so much to both of you.