Henry McVey on inflation: ‘there are things the Fed can’t control’

on Jun 16, 2022
  • KKR's Henry McVey explains why inflation continues to escape the Fed.
  • He expects macro landscape to remain a headwind for corporate profits.
  • The S&P 500 index slid nearly 4.0% to a new 52-week low on Thursday.

Inflation will be “stickier for longer” because there are things the “Fed can’t control”, says Henry McVey. He’s the Chief Investment Officer at KKR Balance Sheet.

McVey’s remarks on CNBC’s ‘Squawk Box’

The U.S. central bank resorted to a 75 basis points increase in interest rates after a worse-than-expected CPI print for May. Still, McVey said this morning on CNBC’s “Squawk Box”:

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I think oil will stay higher for longer, particularly [for] 23 and 24. So, our view is that inflation will be stickier for longer because of commodities, Russia’s invasion of Ukraine, and the supply constraints. Those are all issues that the Fed can’t control.

Chair Jerome Powell also acknowledged in his press conference that some things, indeed, were “out of our hands”.

Consumers will continue spending on ‘services’

S&P 500 index slid nearly 4.0% to a new 52-week low on Thursday. The macro landscape, McVey added, will remain a significant headwind for corporate profits and margin expansion.

We have corporate profits declining 5.0% next year. The consensus is up 9.0%. Wall Street thinks that 85% of companies will have rising margins. I don’t think that’s going to happen in the inflationary backdrop that we foresee.

A sector he expects will “boom” moving forward is “services”. The FOMC members now expect the U.S. economy to grow by 1.7% only versus their earlier forecast for a much higher 2.8% growth instead.

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