Hedge fund billionaire David Tepper said the Federal Reserve could cut rates a bit more, but then risks more inflation and other dangers to the economy and markets if the central bank goes further than that.
In other words, be careful what you wish for.
“If they go too much more on interest rates, depending what happens with the economy … it gets into the danger territory,” Tepper said Thursday on CNBC’s “Squawk Box.” “You’ve got to be careful not to make things too hot.”
His comments come after the central bank lowered interest rates by a quarter point Wednesday, the first cut this year, while signaling two more reductions are coming this year. Fed Chair Jerome Powell characterized the cut as “risk management” rather than something more directed at shoring up a weak economy. President Donald Trump has been pressuring the chief to slash the fed funds rate quickly and aggressively.
Tepper feared that if the Fed lowers rates while inflation hasn’t been fully tamed, demand can pick up faster than supply, reigniting price pressures. Meanwhile, too-easy monetary policy could potentially create asset bubbles as investors keep flocking into riskier corners of the markets.
“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. So they should be a little bit restrictive,” Tepper said. “Beyond that, you’re really risking a lot of things, a weaker dollar, more inflation and those sort of things.”
‘Don’t fight the Fed’
The founder and president of Appaloosa Management noted valuations are high, but he wouldn’t bet against stocks yet while the Fed is still in easing mode.
“I don’t love the multiples, but how do I not own it?” Tepper said. “I’m not ever fighting this Fed especially when the markets tell me … one and three quarter more cuts before the end of the year, so that’s a tough thing not to own.”
The S&P 500 is trading at almost 23 times forward earnings, near the highest level since April 2021, according to FactSet. Valuations for some of the megacap tech names have become sky high. Nvidia‘s price-earnings ratio is at 30 times, while Microsoft trades at nearly 32 times forward earnings.
“I’m constructive because of the easing right now, but I’m also miserable because of the levels,” he said. “Nothing’s cheap anymore.”
Tepper, also the owner of NFL team the Carolina Panthers, revealed he’s been trading his Nvidia position. At the end of June, Appaloosa held about $277 million worth of the chip stock, owning it as the fund’s seventh-biggest bet.
“I do own Nvidia, but I go back and forth a little bit … trade a little bit,” Tepper said. “We’ve always had some Nvidia position, but not the same size.”
Click here to watch the full interview.