Blackstone Sees Fed Funds Rate Near 5% on Longer Hiking Cycle

(Bloomberg) — The Federal Reserve will need to go on a longer tightening cycle and raise interest rates well into next year to control inflation that Blackstone Group sees as “more deeply entrenched” in the US.

Most Read from Bloomberg

“My own view is the Fed funds rate could exceed 4%. I think they could go above 4.5%, maybe even closer to 5%,” Joseph Zidle, chief investment strategist in Blackstone’s Private Wealth Solutions group, said in a Bloomberg Television interview and in emailed comments.

Several indicators, such as shelter and wages, as well as the general capacity constraints in the US economy, are showing that inflation is running hotter, which will require a “bigger and longer” central bank response, said Zidle.

Blackstone expects the Fed to hike by 75 basis points in the July meeting. Market participants, meanwhile, have dialed down rate-hike bets recently. Swaps tied to Fed meeting outcome dates indicate traders expect the policy rate to peak around 3.6% by February before officials start cutting borrowing costs to shore up growth.

Zidle favors hard assets with short-duration income and where there is a scarcity of supply such as rental housing and logistics. He likes dividend and free cash flow-generating investments to mitigate interest rate risk.