(PresidentialWire.com)- Billionaire investor Bill Ackman said the Federal Reserve was playing “catch up” with inflation, and interest rates could surpass 5% by next year.
Ackman tweeted Thursday afternoon that inflation is out of control, and inflationary expectations have become unanchored. The Fed has finally come to this realization, decided to act, and is playing catch up.
The Fed last week intensified its drive to tame high inflation by raising its key interest rate by three-quarters of a point — its most significant hike in nearly three decades — and signaling more large rate increases to come that would raise the risk of another recession.
The Fed’s move will increase its short-term benchmark rate, affecting many consumer and business loans, to a range of 1.5% to 1.75%.
Ackman tweeted that the recession word is on everyone’s lips, but recession talk won’t bring down inflation. Consumers and corporations are well-capitalized and underleveraged. Banks are massively underinvested, with one of the lowest ratios of deposits to loans in history.
“The potential for a future recession won’t stop the Fed from raising rates now,” said Ackman.
Ackman blamed Jerome Powell’s “communication style” for the bond market misreading the Fed chairman, leading to a massive decline in short-term rates.
The Pershing Square Capital Management CEO tweeted that Powell does not come across as someone who wants to battle against inflation. He seems uncomfortable and reluctant, almost apologetic, about raising rates.
“The Fed has a credibility problem as the bond market flat out ignores Powell’s and the governors’ commentary,” the CEO wrote.
However, Ackman said “the Fed is serious” about raising interest rates to curb inflation. He added that he expects the Fed to hike rates by 75 basis points or more in July and by 50 basis points or more in subsequent meetings until inflation is decelerating toward the target rate of 2% and that an interest rate of “5% or more next year is in the cards.”
Ackman tweeted that Powell and the Fed governors care about the American people, our economy, and their legacy and that Powell does not want to be known as a worse chair than Arthur Burns.
In late May, Ackman warned that stocks would continue to fall until the Fed signaled a commitment to tackling inflation.
Ackman tweeted on May 24 that it ends when the Fed puts a line in the sand on inflation and says it will do whatever it takes, and then demonstrates it is serious by immediately raising rates to be neutral and committing to continue to raise rates until the inflation genie is back in the bottle.