David Tepper, founder and president of Appaloosa Management;
David Orrell | CNBC
David Tepper of Appaloosa Management said investors should believe the Fed when it says it will cut interest rates because it now has to maintain its credibility.
“You just read what they’re saying,” Tepper said Thursday on CNBC’s “Squawk Box.” “Powell said something. … He said some kind of recalibration. He’s got to implement it to some extent. I’m not that smart. I just read what they’re saying and see if they have conviction. They usually do what they say, especially when they have this level of conviction.”
The Federal Reserve cut interest rates by half a percentage point last week, launching its most aggressive monetary easing campaign in four years, even as the economy remains fairly stable. In addition to the cut, the central bank signaled through its “dot plot” that it will cut interest rates by another 50 basis points by the end of the year.
Fed Chairman Powell called the rate cut a “recalibration” for the central bank and gave no indication that the bank would take similar action at future meetings.
“They probably need to cut rates by 25 basis points two or three times or they’ll lose credibility,” Tepper said. “They’ll do more than 50 basis points. It looks like they need to cut rates another 25, 25, 25, 25 basis points.” (1 basis point is equal to 0.01 percentage point.)
“I don’t like the US market.”
Still, Tepper said the macro environment for U.S. stocks is worrying as the Fed eases monetary policy in a relatively strong economy, as it did in the 1990s. Last week’s big rate cut came even though most economic indicators looked fairly solid.
“In the ’90s market, the economy was booming and the Fed cut rates because of the Y2K problem,” he said. “That turned into the bubble frenzy of ’99 and early 2000, so I’m not a fan of that. I’m a value guy.”
Gross domestic product has been growing steadily, with the Atlanta Fed projecting 3% growth in the third quarter, citing strong consumer spending. Meanwhile, most indicators suggest inflation is still well above the Fed’s 2% target. But the labor market is slowing, which is partly why interest rates have been cut too much.
“It definitely won’t be short.”
A widely followed hedge fund manager said that while he was hesitant about the central bank’s move, he definitely wouldn’t bet against U.S. stocks for the immediate benefits of easing policy.
“I don’t like the U.S. market from a value perspective, but I certainly don’t short it because I get very nervous about easy monetary policy everywhere and relatively strong economies,” Tepper said. “I get nervous if I’m not somewhat long U.S. stocks.”
Tepper, who also owns the National Football League’s Carolina Panthers, has made it clear he plans to focus all his efforts on China, on the back of interest rate cuts and a series of aid packages recently announced by the Chinese government to shore up its struggling economy.
He added that he prefers Asian and European stocks over U.S. stocks.
