- Bill Ackman expects inflation to linger until the Fed roughly triples interest rates.
- The Pershing Square boss downplayed recession fears, citing the strength of the US economy.
- Ackman argued that tackling inflation would boost stocks, longer-term bonds, and the economy.
Bill Ackman predicted stubborn inflation, called for a flurry of interest-rate hikes, and downplayed the risk of a genuine recession in a Twitter thread on Monday.
"Inflation is not coming down soon," the billionaire investor and Pershing Square boss said. He pointed to supply constraints driving up the prices of food, energy, and housing; limited immigration and a wave of resignations fueling wage growth; and companies raising prices to offset higher costs and capitalize on their pricing power.
The Federal Reserve will have to roughly triple interest rates to between 4% and 5% by next year to halt the inflationary spiral, Ackman said. Squashing inflation quickly would boost stocks, longer-term bonds, and the broader US economy, he continued.
"Inflation is hurting business and consumer confidence and slowing growth," Ackman said. "Killing off inflation will save the economy in the longer term at the expense of some short term pain."
The investor noted that Pershing Square stands to gain from a raft of rapid hikes, as it owns hedges designed to pay off if interest rates rise.
Ackman outlined in his Twitter thread why he's far more concerned about inflation than a recession. He painted a rosy picture of the US economy, highlighting solid growth in nominal GDP and robust consumer spending this year. He also noted twice the number of job openings as job seekers, unemployment at a 50-year low, significant wage increases, and the prospect of strong second-quarter earnings for most companies.
While the US might soon technically enter a recession — defined as two consecutive quarters of GDP declines — that wouldn't be a fair reflection of the economy's health, Ackman argued.
"Overall demand is extremely strong," he said. "We have a supply, not a demand problem. This does seem like a set up for a true economic recession regardless of the favored definition."
Ackman has previously emphasized his primary concern is inflation. In June, he warned price increases were out of control and investors weren't taking the Fed seriously. He also suggested the inflation threat wouldn't recede until the stock market crashed or the central bank aggressively hiked rates.
Moreover, Ackman urged the Fed in May to keep hiking until the "inflation genie is back in the bottle," and recently voiced his support for multiple hikes of 100 basis points this year.