During a recent interview with CNBC, Carlyle Group co-founder David Rubenstein was asked about his views on Federal Reserve Chairman Jerome Powell’s policies.
Rubenstein is in a better position than most to comment on the chairman's decisions, given that Powell worked at Carlyle for eight years. Rubenstein also commented on the U.S.-China trade war and said he expects some resolution to the impasse soon.
What is on Powell's mind?
“He said that he depends on and the Fed depends on the economic situation and the statistics. But right now, based on what he sees, it appears, though I can’t really speak for him, it appears that he feels that there’s a justification for a pause [in rate hikes] for a while, and I would expect that probably you wouldn’t see an increase in interest rates any time in the near future.”
The Fed’s sudden change of heart on rate hikes has been one of the defining moments of 2019 so far.
When asked to provide his own view of where he sees markets heading later this year, Rubenstein siad he does not see a U.S. recession any time soon, though weakness in Europe troubles him:
“We own about 200 companies, partial stakes or full stakes around the world, so it gives us a good insight. Essentially, I would say that the economy around the United States is in reasonably good shape. We don’t see any signs of a recession. We’ve gone about 10 years without a recession. That’s very unusual, but we don’t see any signs of it in all the data we have at our companies. Europe is obviously slowing down. I think Brexit is a big problem for Europe. And France and Italy have some other challenges as well. So I’m not as bullish on Europe at the moment. Though I think prices are relatively low and probably a good place to invest.”
Trade war
While a resolution to the trade tension is still far away, Rubenstein is more positive that a deal is coming:
“Well, of course, things can always go wrong, but the signs that have come out of both sides are that there’s some indication that there will probably be a meeting with the President and Xi Jinping at some point in the not too distant future, at which point they will probably reach an agreement that’s publicly announced.
Obviously, there are difficult issues to be resolved. I think enforcement is one of the most important issues that has to be resolved. If they reach an agreement, they have to figure out how to enforce it. But I do think there’s a sense on both sides it would be good for both sides to get an agreement. And I think if there is an agreement in the not too distant future, I think that will pick up the Chinese economy and I think it will be bullish for the U.S. economy as well.”
He is right to highlight the thorny issue of enforcement. Both parties involved in the dispute have ample evidence their counterpart is not playing fair. Any settlement will require both the U.S. and China to compromise on some key issues, like intellectual property protection and currency manipulation. But a deal is ultimately in the interests of both countries, which is perhaps why Rubenstein thinks it is forthcoming.
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