Bill Ackman: Only 2 things can stop ‘out of control’ inflation
Hedge fund billionaire Bill Ackman delivered a dire forecast about the impact of persistent inflation on the US economy this week – warning that only sustained aggressive action by the Federal Reserve or a complete economic collapse will bring down prices.
The Pershing Square Capital boss said inflation, which hit 8.3% in April, has gotten “out of control” – and investors are losing faith in the Fed’s ability to cool the economy without triggering a recession.
“Markets are imploding because investors are not confident that the @federalreserve will stop inflation,” Ackman said as part of a lengthy Twitter thread on Tuesday.
“If the Fed doesn’t do its job, the market will do the Fed’s job, and that is what is happening now.”
Critics argue the Fed was too slow to react to inflation as it took hold in the US economy over many months. The Dow Jones Industrial Average is down nearly 13% this year, while the tech-heavy Nasdaq is down nearly 30% and the S&P 500 is flirting with bear market territory.
The billionaire argued that current economic conditions, such as “raging inflation” coupled with record job openings, low unemployment and major imbalances in supply and demand for necessities such as food and fuel, leave officials with few options to address the situation.
Ackman called on the Fed to intensify its effort to fight inflation by hiking interest rates.
“There is no prospect for a material reduction in inflation unless the Fed aggressively raises rates, or the stock market crashes, catalyzing an economic collapse and demand destruction,” Ackman said.
The recent downturn in the market highlights the challenge facing the Fed to regain the confidence of investors. Powell and other top economic officials initially dismissed inflation as “transitory,” only to reverse course in recent months and admit that pandemic-era supply chain disruptions have been slower to ease than they expected.
Earlier this month, the Fed enacted a larger-than-normal 0.5% interest rate hike – effectively making it more expensive to borrow money with a goal of cooling spending. Powell has signaled similar hikes to come in June and July.
Ackman asserted that the Fed, which “already lost credibility” for initially understating the problem, needs to reassure investors that it is prepared to take aggressive action to bring down inflation.
“How does this downward market spiral end? It ends when the fed puts a line in the sand on inflation and says it will do ‘whatever it takes,’” Ackman said. “And then demonstrates it is serious by immediately raising rates to neutral and committing to continue to raise rates until the inflation genie is back in the bottle.”
