The Fed won’t get back to 2% inflation without sparking a serious depression, Interactive Brokers chairman Thomas Peterffy says

  • The Fed isn’t going to get inflation down to its 2% target without sparking a depression, Thomas Peterffy said.
  • Petterffy pointed to persisting inflationary pressures, such as deficit spending, lowered global trade, and labor market imbalances.
  • He did not believe stocks had bottomed yet, and said the S&P 500 could fall another 16%.

Despite embarking on an aggressive monetary policy path in 2022, the Fed isn’t going to get inflation back down to its 2% target over the next two years without sparking an economic depression, according to Interactive Brokers chairman Thomas Peterffy.

The US central bank has been scrambling to rein in inflation this year, but prices are still running hot, with the Consumer Price Index clocking in at 8.5% in July. It’s a long ways from the Fed’s ideal target, and it makes it unlikely that they’ll reach their goal anytime soon, Peterffy said. 

“[The Fed] would have to cause a very, very serious depression to do that. And they will not do that,” he warned in an interview with Bloomberg on Wednesday. 

Other commentators have also doubted the Fed’s ability to lower inflation to its long-run target, as the economy would have contract too much for the Fed to avoid a severe downturn. BlackRock estimated that an additional three million people could be unemployed by the time the Fed catches up with inflation, making it unlikely that central bankers will fully shrink the economy to the necessary levels.   

Peterffy also pointed to persistent inflationary pressures in the economy, such as lowered global trade. That’s largely influenced by western sanctions on Russian oil, which have led Russia to slash its natural gas supplies off the market and drive energy prices to atmospheric levels. 

It’s compounded by higher deficit spending in the US, as well as the lack of skilled workers in the labor market, Peterffy said, referring to July’s job report. Job openings remained relatively high at 11.2 million, according to the Bureau of Labor Statistics. 

“They all contribute to inflation and it’s not going to be over very soon. So our rates will have to rise … somewhat longer and stay up there,” Peterffy said.

He added that could also mean stocks have more room to fall, and predicted the market would finally bottom when the S&P 500 reached the 3300-3500 range. That would represent a headwind of 11%-16% from Thursday’s open at 3950.