War inflation versus artificial intelligence. And in the background there are growing concerns about the credit crisis

The big names in the financial world are getting used to the idea that the wave of inflation caused by the crisis in the Strait of Hormuz will bring negative consequences – both for the economy and for financial markets and digital assets. However, there are factors mitigating this blow that allow markets to brave geopolitical shocks.

Jerome Powell: This doesn't look like a good job market

“It doesn't look like a good job market,” said Jerome Powell, head of the US Federal Reserve.

After the decision on interest rates announced this week, which again remained unchanged, his last press conference in this position was held.

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The head of the central bank is leaving his job in the face of the price shock on the energy market, which is why investors and the media were interested not only in his comments on the transfer of the reins of the institution, but also on the condition of the American economy.

The central bank officially claims that the situation on the labor market is stable. Recent job growth has remained steady, and unemployment is just a hair higher than last year (4.3% in March).

However, Jerome Powell added a caveat at the press conference.

– Fundamentally, no new jobs are created. In a sense, the labor market is balanced, but it is an unusual and uncomfortable balance in which unemployed people will have difficulty entering the market unless someone else quits their job, he explained.

Demand for workers has clearly weakened, but other indicators such as vacancies, layoffs, employment and nominal wage growth have generally changed little in recent months.

Ray Dalio: We are indeed entering a period of stagflation

Ray Dalio, founder of the hedge fund Bridgewater Associates, warns that the US economy is entering a period of stagflation and the central bank would make a mistake by lowering base interest rates.

– We are indeed entering a period of stagflation – he assured on CNBC. – How the situation will develop will depend on many factors.

However, in such a situation, lowering interest rates would be very risky.

– Given all the current problems with inflation, which is still far from target, as well as the issue of confidence, markets will be watching carefully how Kevin Warsh manages monetary policy – ​​said the investor.

By lowering interest rates in the face of higher inflation, according to the investor, both the head of the central bank and the institution itself would lose the confidence of the markets.

Head of a Norwegian fund: The deflationary impact of AI calms the markets

Nicolai Tangen, head of Norway's sovereign wealth fund, says productivity gains from artificial intelligence are cushioning the wave of inflation coming from the Middle East.

In his opinion, this explains the sluggish reaction of financial markets to the crisis in the Strait of Hormuz.

– The reaction of the markets is surprising because, considering what is happening in the Middle East, one would expect it to translate into higher prices of energy, fuel and fertilizers – said the head of the fund on Bloomberg Television.

– To some extent, it is already starting to affect Asia. We should expect it to hit Europe and the US with higher prices as well. This is usually bad news for the markets. However, the markets accept it completely without fear – Tangen described the situation.

Nicolai Tangen emphasized that it is inflation that negatively affects financial markets.

– Inflation is something that usually hurts markets. That's why we need to watch her carefully. On the other hand, we have artificial intelligence and, we believe, its deflationary impact. I believe this is what the markets are currently pricing in, he said.

Tangen himself is a well-known proponent of artificial intelligence and claims that the implementation of this technology at the fund management company Norges Bank Investment Management has increased efficiency by 20 percent.

Citadel Founder: The real problem is the liquidity mismatch

This week there was also the topic of the private debt market. Ken Griffin, founder of hedge fund Citadel and trading firm Citadel Securities, says part of the problem is retail investors not understanding the private debt funds in which they invest.

“The real problem is the liquidity mismatch between the retail investor and the investment time horizon,” he said in an interview with the Financial Times.

– We live in a world where retail investors have become accustomed to the fact that the liquidity of their investments is ensured at all times. Investing in private debt is a completely different matter, notes Ken Griffin.

Large alternative fund managers, who typically offered their products to institutional investors, have recently expanded their offerings to the retail market.

“Retail investors were seen as a phenomenal channel for raising capital,” explains Griffin. – But have retail investors really understood the nature of the investments they are making? – he asks rhetorically.

Jamie Dimon: It's going to be worse than people in the private debt sector think

The decline in the private debt market may be more painful than expected, says Jamie Dimon, head of JPMorgan, who spoke from the stage during an investment conference organized by a Norwegian oil fund.

The fact that there are over a thousand service companies operating in the private debt sector suggests that not all of them will cope well with changes in the business cycle.

– Some of them may be great, but I guarantee you not the whole thousand – said the bank manager. – So in my opinion, given credit underwriting standards and the fact that we haven't had a credit crisis for so long, when it comes it will be more painful than people think.

– It won't be a nightmare, it will just be worse than people in the private debt sector think – he added. – By the way, this also applies to some banks.

Mike Novogratz: I don't think the Fed will do anything

For Bitcoin to return to the $100,000 mark, several favorable circumstances must occur – but this is currently unlikely.

At least that's what billionaire Mike Novogratz, founder and head of digital assets company Galaxy Digital, says. The company deals with trading and lending cryptocurrencies, as well as investing and mining them.

– A few things will have to happen. Most will depend on interest rate cuts by the central bank. In the context of war with Iran, we are going to see some pretty nasty inflation readings. That's why I don't think the Fed will do anything. He will rather just wait and watch, he said.

Cryptocurrency markets have been stagnant lately, and Mike Novogratz's company is leveraging its cryptocurrency mining infrastructure to provide services to AI companies looking for computing power.