Billionaire investor Leon Cooperman warns of sticky inflation and looming recession - and flags the threat of financial disaster

• Leon Cooperman warned of sticky inflation, higher interest rates, and a potential recession.
• The billionaire investor blamed senseless fiscal and monetary policy in an interview with Insider.

Short-sighted officials have paved the way for stubborn inflation, steeper interest rates, and a full-blown recession, Leon Cooperman told Insider in an interview this week.

The billionaire investor railed against years of "very inappropriate" monetary and fiscal policies, saying they've driven demand to unsustainable highs and caused the government's debt pile to balloon.

Near-zero interest rates, carefree government spending, and excessive bond-buying overheated the economy and caused prices to soar last year, which spurred the Federal Reserve to rapidly raise borrowing costs and destabilize the system, Cooperman said.

The ex-chief of Goldman Sachs' asset-management arm — who converted his Omega Advisors hedge fund into a family office in 2018 — said the jarring shift from quantitative easing (QT) to tightening (QT) has combined with other growth headwinds to lay the groundwork for an economic slump.

"I've been of the view that the price of oil, the strong dollar, QT, and the Fed will push us into recession," Cooperman said. Some parts of the economy are already contracting, but a broader downturn has been delayed by the sheer scale of public spending, he continued.

Cooperman also rang the inflation alarm, saying the pace of wage increases — a key driver of price growth — was unlikely to slow markedly given the tight US labor market. Inflation has cooled from a 40-year high of over 9% last summer to below 4% in recent months, but that's still almost double the Fed's target rate of 2% a year.

The veteran investor, who lives frugally and has pledged to give virtually all of his fortune to good causes, gave a couple examples of his personal experience of inflation. He told Insider that a single pretzel at Yankee Stadium costs $13 today, whereas he could have bought two for a nickel when he was growing up in the Bronx. Moreover, he recently wanted to replace a Hyundai he'd bought for $54,000 in 2017 with a new model, but walked away when the dealer quoted him a price of $104,000.

As prices continue to jump, Cooperman suggested interest rates — which the Fed has raised from virtually zero to above 5% during the last 18 months — could rise further. The yield on the benchmark 10-year US Treasury could climb past 5% and even reach 6%, he added.

Higher rates encourage saving over spending and increase borrowing costs, which can curb inflation. However, they can also pull down the prices of assets like stocks and houses, erode corporate profits, and boost the odds of a recession.

Cooperman called on Washington to clean up its finances or face the consequences. The national debt has grown to an unprecedented $33.6 trillion, the budget deficit surged by nearly a quarter to $1.7 trillion in the fiscal year to September, and the US government's interest payments topped $659 billion during that period — nearly double the figure for fiscal 2021.

"We've got to get our house in order or we're headed for a crisis," Cooperman said.