Spencer Platt
Hedge fund billionaire John Paulson said the Federal Reserve is behind in starting rate cuts, and sees monetary policymakers bringing the benchmark rate down to as low as 2.5% next year.
“[Real] interest rates are too hot,” with inflation running around 3% and interest rates sitting in the 5% range, Paulson told Bloomberg TV in an interview Thursday after he attended a speech by former U.S. President and current presidential nominee Donald Trump at the Economic Club of New York.
“So the Fed, I think, waited too long to bring interest rates down. I think the likely course of action going forward is the Fed will start to cut interest rates,” Paulson said. While “it’s difficult to predict,” Paulson projected the key rate would be at 3% or 2.5% by the end of 2025. The fed funds rate was last at 2.5% in mid-2022.
The president and founder of Paulson & Co. spoke before the Fed was expected to begin a rate-easing cycle at its Sept. 17-18 meeting.
Interest rates moving lower would be “generally beneficial” for the U.S. economy, Paulson said. “The major cost when you get a mortgage is the interest rate. If the cost of mortgages come down, the cost of buying a home would also come down, and that makes housing affordability go up,” he said.
“That would spur new housing development,” said Paulson, who was on Trump’s economic advisory team when Trump was president.
Odds were at 59% late Thursday that policymakers would cut the fed funds rate by 25 basis points from 5.25%-5.5%.
Paulson & Co.’s portfolio value was $1.35B in Q2, with 16 holdings, according to its 13F regulatory filing in June.