Blackstone's Gray: Slow Growth Ahead, Fed to Cut Rates Once

Key Takeaway

• Blackstone Inc. President Jon Gray predicts economic growth will slow due to persistent inflation and cautious Fed rate cuts.
• Fed's stance on maintaining high US rates longer than expected to combat inflation, as per Chair Jerome Powell's recent remarks.
• Blackstone, with $1 trillion in assets, plays a significant role in the economy through business lending and infrastructure financing.

Economic Growth and Inflation Concerns

Blackstone Inc. President Jon Gray highlighted at the Macquarie Australia Conference in Sydney that economic growth is expected to decelerate due to persistent inflation, impacting the Federal Reserve's capacity to lower borrowing costs. Gray anticipates a cautious approach from central banks towards rate cuts to avoid reigniting inflation pressures, suggesting a single opportunity for rate reduction within the year. This stance aligns with recent signals from Fed policymakers and Chair Jerome Powell, emphasizing the need to maintain high US rates to combat inflation effectively.

Real Estate Market Divergence

The US commercial real estate sector exhibits a split perspective among major investors. Blackstone, with significant global property investments, perceives the market as nearing a bottom, citing peaking interest rates and a slowdown in new construction. Conversely, Starwood Capital Group forecasts a distress cycle ahead, driven by the impact of higher interest rates on bank loan portfolios. This divergence reflects broader uncertainties in real estate, compounded by a global decline in transactions and challenges in property valuation amidst a shifting interest rate landscape.

Fed's Stance on Interest Rates

Federal Reserve Bank of Boston President Susan Collins indicated that interest rates might need to remain at their two-decade peak longer than anticipated to curb demand and address inflation. Collins pointed to recent economic and inflation data suggesting a slower return to the Fed's 2% inflation target, necessitating a sustained restrictive policy stance. This view is consistent with Fed Chair Powell's remarks on the ongoing efforts required to stabilize inflation, underscoring a cautious approach to monetary policy adjustments.

Street Views

• Jon Gray, Blackstone Inc. (Neutral on economic growth and Federal Reserve's rate policy):

  "We see a deceleration of growth... Central banks will be slow on the cutting of rates, because they don’t want to see a rise of inflation. The Fed will be patient, they’ll have the opportunity to cut once this year."