- Carl Icahn warned of an ugly end to the Federal Reserve's money-printing spree.
- The US central bank can't keep pushing out money and its "party has to stop," he told Bloomberg.
- The investor said there are too many variables to predict when the next bear market will occur.
Billionaire investor Carl Icahn warned red-hot inflation spells trouble for markets, as the government is incapable of controlling price increases.
"It doesn't end happily," the Icahn Enterprises chairman told Bloomberg in a Wednesday interview. He questioned the Federal Reserve's unprecedented money-printing game, aimed at supporting the flow of credit to households and businesses during the pandemic.
"Sooner or later, a situation like this is going to end relatively badly. You can't keep printing up money, and printing it up, and printing it up because that debt – which you have now that you can't control — the government can't control inflation," he said.
The only thing the Fed can control is its policy, Icahn said. He highlighted Former Fed Chair Paul Volcker's efforts to fight persistently high inflation and reset the economy in the late 1970s.
When COVID-19 hit in early 2020 and the entire economy hunkered down as demand collapsed, the central bank and government quickly sprang into action — an indication of lessons learned from the great financial crisis. The Fed cut its benchmark interest rate to nearly zero and announced massive stimulus packages to prop up the economy and incentivize borrowers to consume.
With all this money being printed and dropping into the system, the economy was apparently on the road to recovery and US stock markets consistently hit record highs throughout last year.
But that, combined with supply chain constraints, has led to US inflation hitting its highest level in nearly 4 decades, with the popular CPI (Consumer Price Inflation) index hitting 7.5% in January.
Against that backdrop, Icahn said he isn't predicting a near-term end to euphoria in markets.
"I'm not predicting that we're in a bear market," he said. "I'm not predicting that this is going to end, sort of this euphoric atmosphere."
"You really can't predict. There are too many variables."
To combat high inflation, a more hawkish Fed is dialing back its pandemic-era purchases and wants to raise rates as soon as March. And now, the investor euphoria of last year seems to have cooled.
"I think it's economics 101 in high school," Icahn said. "You can't just keep pushing out money ... because that money will definitely lose its worth, like anything else."
"The Fed keeps pushing it out there, and that's great for a while," Icahn added. "It's like, it makes you happy. And at times it's certainly needed, but now you can't. That party has to stop."
Icahn warned that the major consequence of outsized money printing is rampant inflation.
"And it's not there yet. But it has to be controlled. And it's not something that you could wait to see if it happens. Because I've seen that in the past. You wait and you wait too long, maybe," Icahn said.
Still, he didn't blame the Fed entirely, praising the bank for its aid.
"I think the Fed has done a pretty good job over the last few years in sort of saving the economy. So that's not the issue," he said.
"But the issue is... I guess that over the next three to four years, and maybe a lot sooner, you are going to see this whole thing hit the wall in one way or another," Icahn added. "And it's not going to be a pretty outcome."