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Billionaire hedge fund investor Stanley Druckenmiller said Friday that mounting corporate debt puts the U.S. in bad shape in the event of a recession.

Druckenmiller believes the Fed should have raised rates more in 2016 when it had the chance. By not raising borrowing costs, it caused corporate debt to balloon to $10 trillion and left the Fed with less firepower to fight an economic contraction.

“We are in worse shape for a recession now than if things had slowed down,” Druckenmiller told CNBC’s “Squawk Box. “

“The biggest problem is what [then-Fed Chair Janet] Yellen did. We had a booming economy, fairly early cycle. I know I talk to much about the Fed, but at the time I said they should sneak one in every time they can until they get to some normal rate,” Druckenmiller said. “We had that whole period in 2016 where, in my opinion, they could have gotten to 3.5 or 4, we’ll never know but they could have at least tried.”

Stanley Druckenmiller

Anjali Sundaram | CNBC

Druckenmiller said Fed Chairman Jerome Powell inherited a difficult situation.

“Once confidence turns down, you have to deal with the hand you’re dealt, and Chairman Powell has now got a tough situation on his hands.”

“I deeply, deeply believe in a capitalist system you need a hurtle rate for investment and if that rate in not up there around 3 or 4 [percent], people are going to get crazy. Investors are going to get crazy, corporations are going to get crazy, zombies are going to stay in business, and we had the opportunity to get there,” Druckenmiller said.

Powell said last month that corporate debt is around record levels but is not posing a larger threat to the financial system.

Druckenmiller said he’s unsure about the direction of markets. He’s not overly bearish or bullish on stocks. The Dow Jones Industrial Average was set to open up about 100 points.

Druckenmiller is former chairman and president of Duquesne Capital and is currently CEO of Duquesne Family Office.

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