Billionaire hedge fund manager David Einhorn said an inflation-induced recession is imminent — then the Fed warned prices could stay higher for longer

• Billionaire hedge fund manager David Einhorn predicted an inflation-induced recession is imminent.
• He said the Federal Reserve can do little to combat an economic downturn at this point.
• The Greenlight Capital boss is known for shorting Lehman Brothers ahead of the 2008 recession.

Star hedge fund manager David Einhorn said no matter what the Federal Reserve does, high-flying inflation will eventually induce a recession.

The Greenlight Capital boss said Wednesday in an investor letter obtained by CNBC that his firm has already begun readying itself for an economic downturn as inflation soars to its highest in decades.

The letter came ahead of the Federal Reserve's policy announcement and Chairman Jerome Powell's hawkish comments. The stock market turned negative during his press conference Wednesday afternoon, as he said there's plenty of room to raise rates and warned of the risk that inflation could stay higher for longer than expected.

The central bank also signaled Wednesday that it could raise interest rates as soon as March when its emergency asset purchase program is slated to end, with reductions in its balance sheet slated to follow soon after.

But to Einhorn, those may be moot measures.

"Eventually, we believe inflation will cause a recession, regardless of what the Fed chooses to do," CNBC reported that Einhorn wrote in the letter. "The higher prices of necessities will ultimately cause low-income consumers to cut back on other things. There are signs this is already happening."

Inflation, which is at its highest in 40 years, is "so embedded" at this point, that the Fed would have to "sacrifice the primacy of the financial markets" in order to fight it, Einhorn wrote.

CNBC noted Greenlight Capital has been betting on stocks, like Brighthouse Financial and Green Brick Partners, that it has dubbed as good inflation plays.

The firm's billionaire boss, who is known for shorting Lehman Brothers stock ahead of the 2008 recession, said over the summer that inflation would be here for years to come as there are "too many dollars chasing too few goods and services."

A representative from Greenlight did not immediately respond to Insider's request for comment on the letter.