STANLEY DRUCKENMILLER SAYS U.S. BORROWING COSTS STILL A "LITTLE LOW" DESPITE SURGE IN YIELDS / THE FINANCIAL TIMES

Stanley Druckenmiller says US borrowing costs still ‘a little low’ despite surge in yields

Close ally of Kevin Warsh says Federal Reserve officials who argue rates are restrictive are ‘just ridiculous’

Amelia Pollard in New York

Stanley Druckenmiller said: ‘I believe in common sense, and all you have to do is look at asset prices around the world’ © Stefanie Keenan/Getty Images for Chips

Stanley Druckenmiller, a close ally of Federal Reserve chair Kevin Warsh, told a private Wall Street audience that US borrowing costs remained a “little low” and central bankers who thought monetary policy was restrictive were “ridiculous”.

The macro hedge fund manager, a longtime mentor of Treasury secretary Scott Bessent and Warsh, said in a closed-door meeting on Thursday that rate cuts “are no longer needed”.

“Committee members on the Fed who keep saying fed funds rates are restrictive are just ridiculous,” he told a packed crowd of hundreds of Wall Street investors on Thursday morning at a conference hosted by Piper Sandler in New York, according to a transcript seen by the FT and multiple people familiar with the matter.

“I believe in common sense, and all you have to do is look at asset prices around the world,” Druckenmiller said.

His views on US monetary policy have taken on increased significance because of his longstanding relationship with Warsh. 

Druckenmiller said he is no longer allowed to speak to Warsh, but described him as one of his “closest friends” and called him a “great Fed chair”.

Druckenmiller’s comments came amid a sell-off in Treasuries, which has been sparked by the jolt of inflation caused by President Donald Trump’s Iran war, the US’s spiralling public debt and huge issuance of bonds by AI companies.

His remarks on Thursday came after the hedge fund manager criticised Bessent’s attempt to prop up the US Treasury market with an expanded bond buyback programme in a Wall Street Journal op-ed last month.

The upsized buyback scheme, launched this week with plans for a $6bn operation, has disappointed many Wall Street investors with yields pushing higher in recent days.

The 30-year US bond yield jumped as much as 0.06 percentage points on Thursday to 5.35 per cent, its highest level since 2007, while the 10-year yield is approaching 5 per cent. 

Short-term yields have also risen as markets have priced in a Fed rate increase next week.

“Given what’s going on in the economy and the capital spending boom and the war for capital, if anything, [bond yields seem] a little low,” Druckenmiller said. 

“It’s just been like a slow, fundamentally driven march upward in yields. 

But I don’t find it alarming at all.”

Investors have long viewed Druckenmiller as one of the brightest economic thinkers on Wall Street. 

He worked for George Soros in the 1990s during the hedge fund manager’s historic bet against the British pound, and has made a fortune at his own family office, Duquesne Capital, where Warsh worked as a partner before he was confirmed as Fed chair earlier this year.

Duquesne has also been an early investor in AI companies. 

He admitted his understanding of the technology came from young analysts for his firm who are “embedded in the network of AI research lab kids”.

Most of Duquesne’s recent profits have come from bets on AI instead of traditional macro investments such as currency or bond wagers. 

But Druckenmuller said that while the firm was bullish on AI companies, it had cut its investments in the industry to 20 per cent of what they were six months ago.

“It’s been an incredible ride on the whole AI thing,” he said. 

“I think we’re getting late enough in the build-out that one has to start to worry a little.”

He said the narrative on Wall Street that has irked him recently is that high earnings are going to help the market rise higher indefinitely.

“There’s a good chance we’re in an earnings bubble because this [AI] build-out is going to end at some point, and let’s face it, banks are also [on the] AI trade,” he said. 

“I mean, these guys are making hundreds of millions of dollars when they bring these companies public.”

He said he was “afraid to short the dollar” because of the US’s huge advantage globally in AI development, which he said Europe was “nowhere” on.

Druckenmiller added he has been betting against the euro and the pound since the start of the year, positions that he clarified were much smaller than he has taken in currencies historically, at times making bets that were double the value of his net assets.