Hedge fund mogul Jones asserts that incoming Federal Reserve Chair Waller will not lower interest rates. Meanwhile, he believes AI will drive the U.S. stock market to new highs, but will ultimately face a sharp correction.

Source: Jin Ten Data

Billionaire hedge fund manager Paul Tudor Jones stated in a CNBC interview on Thursday that the incoming Federal Reserve Chair Waller will not only refrain from cutting interest rates but may even consider raising them; at the same time, he remains optimistic about the AI-driven bull market in U.S. stocks, believing the current market is in a mid-term phase with another 1-2 years of upward movement ahead, but will eventually face the risk of a severe correction.

Waller unlikely to cut rates and possibly may raise them

Regarding the policy direction of incoming Federal Reserve Chair Waller, Jones made it clear: "Will he cut rates? Absolutely not."

Waller has previously expressed a tendency towards lowering rates, and the current Federal Reserve's benchmark interest rate is maintained in the 3.5%-3.75% range, unchanged since last December. However, the willingness to ease will face significant opposition from the Federal Open Market Committee (FOMC) — the most recent meeting saw the highest number of dissenting votes in nearly 34 years, with most regional Federal Reserve presidents opposing the statement that suggested "further easing might occur after three rate cuts by the end of 2025."

Jones believes there even exists a rationale for raising rates in the current environment: "I would consider raising rates, of course, it depends on the data, but it will certainly be considered. And I think he will be constrained before the midterm elections."

The current policy backdrop is complex: the labor market is stabilizing, but the war in Iran and Trump’s tariff policy have led to inflation remaining above the Federal Reserve's 2% target. According to CME Group's FedWatch tool, futures traders expect the Federal Reserve to maintain interest rates unchanged this year, with the probabilities of rate cuts and hikes being roughly equal and low.

In line with historical tech waves, the AI bull market still has 1-2 years of upward period

In terms of the stock market, Jones is firmly optimistic about the AI-driven bull market and revealed that he has recently increased his holdings in related stocks. He compared the current development of AI to two major historical tech revolutions: "I believe the emergence of the Claude model in January this year is equivalent to the founding of Microsoft in 1981; and the current phase of AI popularization is similar to the release of Windows 95 in 1995 and the accelerated commercialization of the internet."

Jones pointed out that both of those technological revolutions initiated a "productivity miracle" lasting 4 to 5.5 years, driving long-term stock market growth. "Currently, this AI bull market is about 50% to 60% through, and if I had to pick a timeframe, it could continue for another 1-2 years."

In recent years, the U.S. stock market has continually reached new highs driven by expectations of an AI transformation, with large tech stocks related to AI infrastructure leading the charge, and chipmakers, cloud computing, and generative AI companies becoming focal points for investment, as the S&P 500 index consistently sets historical records.

Similar to the eve of the 1999 internet bubble, the U.S. stock market may face sharp correction risks in the future

Despite being optimistic about the short-term market, Jones likens the current market to the eve of the 1999 internet bubble — with about a year left before the peak in early 2000. He warned: "Imagine if the stock market rises another 40%, the total market value of U.S. stocks relative to GDP could reach 300% to 350%, leading to a suffocating significant correction."

As a macro trader, Jones states that he adopts a basket allocation strategy while emphasizing: "I always like to look for historical precedents, and this is a very special time."

Additionally, he has issued warnings about the long-term risks of AI: "The government will ultimately need to intervene for regulation; if left unchecked, artificial intelligence could pose dangers to humanity."

Jones gained fame for successfully predicting and profiting from the "Black Monday" crash in the U.S. stock market in 1987 and is also a co-founder of the non-profit organization Just Capital, which rates publicly traded companies in the U.S. based on social and environmental metrics.