Citadel’s Ken Griffin cautioned that America’s market rally is being propped up by policies better suited to a recession than a growing economy. Speaking in New York, he said fiscal and monetary policies have created a “sugar high” that masks underlying risks like inflation and dollar weakness. Despite booming equities, Griffin pointed to gold’s record surge—up more than 50% this year—as evidence investors are quietly hedging against U.S. sovereign risk.Markets are going from strength to strength, boosted by the promise of AI and the enormous investments being plowed into the tech sector. Moreover, consumer spending is continuing to hold up despite sticky inflation and a weaker jobs market, providing a steady foundation for growing business confidence.But Citadel’s Ken Griffin is warning this optimism may be synthetic, drawn from fiscal and monetary stimulus which is better suited to a shrinking economy than a growing one. The billionaire hedge fund manager said those policies may be good news for markets, but they are the kind of measures that would normall be expected during a recession.U.S. businesses and consumers are waiting to feel the effects of President Trump’s ‘One Big, Beautiful Bill Act’ which the White House has described as the “largest tax cut in history for middle and working-class Americans.” In addition, the Oval Office has been pressuring the Federal Open Market Committee (FOMC) to cut the base rate significantly (despite inflation staying persistently above its 2% target) in the face of a slowing jobs market—saying the current rate of 4% to 4.25% is more restrictive than necessary. At its last meeting, the FOMC capitulated and axed interest by 25bps, creating cheaper borrowing for consumers, businesses and the government itself. This environment means “we’re definitely on a bit of a sugar high in the U.S. economy right now,” according to Griffin. Speaking at a Citadel conference in New York yesterday, Griffin said: “Markets are seeing the enthusiasm that the Trump administration has created in the American investing public and in corporate America … it’s important to understand that this administration is clearly trying to encourage economic growth in the U.S., they are pursuing a set of policies to re-industrialize America, and they are unquestionably interested in America’s prosperity in a way that we have rarely seen from administration in years past.” Trump 2.0 is also “very much aligned” with making life better for the average American household, Griffin continued, and “this backdrop is fueling much of the enthusiasm you that we see in markets in the U.S.”—even though it may be more appropriate for the middle of a recession as opposed to a “period of near-full employment a few years into the business cycle.” Flight to goldYet despite all the positive sentiment in markets, an alarm bell is sounding: The price of gold. The price of the asset has rallied more than 50% this year to date, a cause for concern given the fact that it’s seen as an asset to retreat to for investors nervous about economic volatility. Griffin isn’t going to ignore the distress signal, he said during the conference: “Inflation is substantially above target and substantially above target for all forecasts next year. It’s part of the reason the dollar’s depreciated … gold is at record highs and the appreciation on other dollar substitutes—I use that word loosely—in items like crypto for example is unbelievable. “So we’re seeing substantial asset inflation away from the dollar as people are looking for ways to effectively dedollarize or de-risk their portfolios vis a vis U.S. sovereign risk,” Griffin explained. At the time of writing the price of gold bullion sits at a little under $4,000 per troy ounce, a figure which many analysts are expecting will steeply jump once or twice more over the next year. Pushing this rise is demand from foreign nations and their central banks, as well as individual investors, said Griffin, who “now view gold as a safe harbor asset in a way that the dollar used to be viewed. “That’s what’s really concerning to me,” Griffin added. Additionally, foreign investors are hedging the returns from their U.S. equities in their own currency, added Griffin, a “bifurcation of: ‘I’m going to bet on American business, but I wanna immunize some of my sovereign exposure to the United States.'” This story was originally featured on Fortune.com