Ackman: Fed too hesitant to fight inflation
Either more aggressive monetary policy or economic collapse will stop inflation
Markets will rise once runaway inflation is defeated
Billionaire hedge fund manager Bill Ackman called on the Fed to shock the market with large interest rate hikes back in February – and thus before the US Federal Reserve’s first interest rate hike. This is the only way for the central bank to demonstrate its determination, regain credibility and possibly win the fight against inflation. But even though the US currency holders have raised the key interest rate several times – and most recently by 50 basis points in a historic step – the hedge fund manager is not satisfied. On Twitter, he painted a bleak future scenario and again called on the Fed to take more aggressive action.
Bill Ackman calls for more aggressive monetary policy again
In Ackman’s view, the Fed is still too hesitant and not doing enough to rein in high inflation. “Inflation is out of control. Inflation expectations are spiraling out of control. Markets are imploding because investors are not confident the Federal Reserve will stop inflation,” the billionaire wrote in a series of tweets recently.
Inflation is out of control. Inflation expectations are getting out of control. Markets are imploding because investors are not confident that the @federalreserve wants to stop inflation. If the Fed doesn’t do its job, the market will do the Fed’s job, and that is what
– Bill Ackman (@BillAckman) May 24, 2022
In fact, the US markets – and elsewhere too – have been going down for some time: the broad US index S&P 500 has lost around 12.7 percent in value since the beginning of the year, and the Dow Jones has been down a good 8.60 percent in 2022 so far down, while the NASDAQ Composite fell about 22.4 percent (as of closing prices as of 05/30/2022). According to Ackman, there is currently no end in sight to the downturn on the markets. However, the Fed could end the downward spiral by “cutting the bill on inflation and saying it will ‘do whatever is necessary,'” Ackman said. This also includes the central bank demonstrating how serious it is by immediately raising interest rates to a neutral level and committing to further rate hikes until the “ghost of inflation is back in the bottle”.
However, the hedge fund manager does not like the fact that some Fed members are already calling for only moderate interest rate hikes again or are even talking about a pause in relation to the tightening in the fall. The Fed has already lost credibility because it misinterpreted inflation and reacted too late, Ackman criticizes. There is no precedent for the current economic situation, he warns. In his opinion, sustained double-digit inflation can only be prevented in two ways: by massive inflation rate hike or a market collapse that will happen if the Fed continues to do its job improperly.
Ackman criticizes: Fed pours oil into the fire
During an investor conference the day before Ackman’s Twitter tirade, the CEO of Pershing Square Capital went even further and accused the Fed of adding fuel to the fire with its current monetary policy. “There is a fire raging and we believe the Federal Reserve has not been aggressive enough in trying to put out that fire,” Ackman said, according to Institutional Investor. “The whole neighborhood is on fire, and instead of putting out the flames, the Fed is still spraying gas,” he said, referring to a US federal funds rate below 1 percent. Currently, the key interest rate in the United States is in the range of 0.75 to 1 percent – but inflation is at 8.3 percent. According to the news website, during the conference call, Ackman did not rule out that a “Paul Volcker answer” would ultimately be necessary. Volcker was Fed chief from 1979 and raised interest rates dramatically during his term of office in order to combat the then hyperinflation with double-digit inflation rates – with success, however, at the expense of the economy, which slipped into a recession.
In his opinion, the economy could collapse even today – if the US Federal Reserve does not act. “The only way to stop inflation raging now is through aggressive monetary tightening or an economic collapse,” Ackman wrote on Twitter. In the current situation, “there is no prospect of a significant fall in inflation unless the Fed aggressively hikes interest rates or the stock market collapses, which would act as a catalyst for economic collapse and demand destruction,” he said . “If the Fed doesn’t do its job, the market will do the Fed’s job, and that’s what’s happening right now,” he wrote, referring to stock prices that have been falling for weeks.
But the hedge fund manager also sees a light at the end of the tunnel. Because he thinks investors would appreciate it if the Fed hiked rates faster and more aggressively — and then flocked back to the market. “Shares (of real companies) are cheap again. Markets will rise once investors can be confident that the days of runaway inflation are over,” said Ackman, who ended his series of tweets by saying, “Let’s hope that the Fed is doing it right”.
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