Billionaire investor Warren Buffett sent a stark warning to his shareholders as the Fed’s inflation gauge rose to 5.4 percent last month.
In his well-publicized annual letter to Berkshire Hathaway shareholders, Buffett, 92, warned that “huge and stalled budget deficits have consequences.”
Buffett also seemed to predict that “financial panics or severe global recessions” were on the horizon as he vowed to protect his investors.
Fears of a recession fueled by persistently high inflation rates peaked on Friday after it was revealed that the central bank’s inflation gauge has risen 0.7 percent so far this year, prompting Wall Street to announce its worst week experienced in 2023.
Warren Buffett (above) warned investors about inflation and the tough economic times ahead
The personal consumption expenditure index rose 5.4 percent on an annualized basis in January from 5.3 percent in the previous month, a worrying sign for inflation
The PCE is an alternative measure to the more familiar CPI (above), which has risen 6.4 percent annually over the past month
Known as the “Oracle of Omaha” for his foresight in the investing world, Buffet warned of tough economic times ahead.
“Our job is to manage Berkshire’s businesses and finances to produce an acceptable outcome over time and maintain the company’s unmatched resilience in the face of financial panics or severe global recessions,” he wrote.
“Berkshire also offers modest protection against runaway inflation, but that attribute is far from perfect,” he added, hinting that all would be hit by the projected recession that other pundits have been predicting for this year.
But despite the warning, Buffett, whose net worth is estimated at around $106 billion, said he is confident the US economy will recover.
“I’ve been investing for 80 years — more than a third of our country’s lifetime,” he wrote. “Despite our citizens’ fondness – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to bet against America in the long run.”
“And I very much doubt that any reader of this letter will have a different experience in the future.”
Buffett’s letter also critiqued corporate greed and hinted that money managers may be trying to hide the upcoming tough patch in America’s economy and mislead investors.
“Finally, an important warning: even our favored operating profit number can be easily manipulated by managers who wish to,” he wrote. “Such manipulations are often considered sophisticated by CEOs, directors and their advisors. Reporters and analysts also applaud its existence.
“This activity is disgusting. It takes no talent to manipulate numbers: only a deep desire to deceive is required.’
Buffett eventually described this form of deception as “one of the shames of capitalism.”
The Dow Jones Industrial Average ended the day down 337 points, down 1 percent in the session and down 2.6 percent in the week ended Friday
The S&P 500 was also down 2.7 percent this week
The Nasdaq Composite lost 3.3 percent this week
Buffett’s letter comes as the personal consumption expenditure (PCE) index rose 5.4 percent annually in January, up from 5.3 percent the previous month, the Commerce Department said on Friday.
On a monthly basis, PCE prices are up 0.6 percent since December, the biggest monthly increase since June, when prices rose at their fastest pace in 40 years.
The news sent stocks plummeting, with the Dow Jones Industrial Average falling 337 points on Friday, down 1 percent for the session and down 2.6 percent on the week.
It was also the Dow’s fourth straight weekly decline, its longest losing streak in nearly 10 months. The S&P 500 and Nasdaq Composite were also down 2.7 percent and 3.3 percent, respectively, for the week.
The PCE is an alternative measure to the better-known consumer price index, which has risen 6.4 percent annually over the past month — more than expected, albeit still a slight month-on-month decline.
January marked the seventh straight month of annual inflation falling from a peak of more than 9 percent this summer, although progress may falter
It’s a worrying signal that the Fed’s aggressive rate hikes are having little impact on inflation.
Core PCE is the benchmark for the central bank’s 2 percent target interest rate and should be the number falling fastest in response to higher interest rates.
The Fed has spent the past year aggressively raising its benchmark federal funds rate in an attempt to curb inflation by raising the cost of borrowing for businesses and families.
The goal is to cool the economy without plunging it into recession, a delicate balance.