Wilbur Ross Worried About Deflation, Not Inflation

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Sep 12, 2014

Legendary Investor Wilbur Ross (Trades, Portfolio) gave a speech to the Japan Society in New York on Wednesday. He thinks that the Federal Reserve will raise interest rates in the middle of 2015, and he also believes that the developed world has structure headwinds that makes inflation a thing of the past. Mr. Ross believes that deflation, not inflation, should be a far of investors and governments at large.

During the speech Mr. Ross said that central banks are doing what they can, but the experience of quantitative easing has taught central banks that,

“financial markets are much easier to move than economies.”

Mr. Ross argued that governments around the world have seen their financing cost decline, thanks to quantitative easing, which has made governments around the world the biggest beneficiaries of QE, not private investors. He went on to say that central banks tend to focus on the dangers of inflation, but he said with globalization, technology and the glut of government debt that maybe deflation should be feared. He believes that Fed chairwoman Janet Yellen will move slowly on the path to end QE efforts and raise rates toward the end of the second quarter next year.

“The Fed has better control of short-term rates” than with QE,

Mr. Ross doesn't believe that the end of QE will lead to a sustainable rise in Treasury Yields. With 45% of the debt of the developed worlds yielding less then 1%, he said that,

“international investors may just buy more Treasurys” should yields rise, “and offset the end of QE

He said that Europe has to make structural reforms and said that many countries especially in the south, will need to make additional labor market reforms beform any real economic growth is to happen in those countries.

Mr. Ross was asked if he saw any risk on the horizon, he said that bank regulation. He believe more banking regulation will make it more difficult for banks to put their shored up balance sheet to work.