Why Blackstone’s Schwarzman Says U.S. Fed Rate Cut ‘Is A Bit Of A Failed Experiment’

The world’s largest alternative asset management firm termed the U.S. Federal Reserve’s decision to cut interest rate to contain the economic damage from coronavirus “a bit of a failed experiment” as people choosing to stay indoors is what’s hurting the global economy more.

“Coronavirus has induced what appears to be a panic in at least the developed world,” Stephen A Schwarzman, chief executive officer and chairman of Blackstone Group, that manages $571 billion worth of assets, told BloombergQuint in an interview. “Experts expect a coronavirus vaccine in 1-1.25 years and if that is true then we have a period of dislocation of severity we don’t completely know.”

The U.S. Fed on Tuesday slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis amid mounting concerns that the coronavirus outbreak threatens to stall the record U.S. economic growth.

Schwarzman, who’s in India to promote his latest book ‘What It Takes: Lessons In The Pursuits Of Excellence’, said the U.S. central bank’s rate cut in reaction to the virus outbreak had a negative effect on stock markets and might not aid in stimulating the U.S. economy.

“I was not in favour of lowering interest rates because it ends up hurting financial institutions and you have to protect your institutions with a balance to stimulate the economy too,” he said. “I don’t think it makes too much difference with rates so low and you make them a bit lower.”

On India

The Indian economy has not come closer to its actual potential even as the GDP growth rate has receded to 4-5 percent in the past few quarters, Schwarzman said. “Part of the problem [economy slowdown] is the banking system is going through some readjustment and is having difficultly in extending credit.”

Blackstone said the real estate vertical would remain the core of the group, with India being one of its key markets. Schwarzman said the group was “disciplined” in what assets it buys in the country — office buildings, malls and warehouses.

Watch | BloombergQuint’s conversation with Stephen Schwarzman on coronavirus, Fed rate cut, India slowdown and more...