- Bill Ackman says the Federal Reserve needs to raise interest rates to 4% or above as it tries to tame soaring prices.
- "A neutral rate of 2.25 to 2.5% makes no sense in a world with 9%, 6% or even 4% inflation," he said.
- Bond and stock markets have rallied prematurely, according to the Pershing Square Capital founder.
The Federal Reserve will have to hike interest rates to at least 4% if it wants to bring inflation under control, according to billionaire investor Bill Ackman.
The Pershing Square Capital chief executive said the US central bank's latest 75 basis point rate hike won't be enough to bring soaring prices under control, despite some investors' bullishness.
"I don't think there is any prospect of getting back to 2% without materially higher rates, 4% or more, which are maintained at these levels for extended periods," Ackman tweeted Friday.
The Fed raised its target funds rate to between 2.25% and 2.5% earlier this week, but Chair Jerome Powell said its decisions on policy will be driven by data in the future, suggesting the Fed could slow the pace of its rate rises if economic indicators deteriorate.
Stock markets rallied after Powell's comments, but Ackman said investors' bullishness looks premature. He added that 2.5% interest rates will likely not be high enough to tame inflation, which hit a 41-year high of 8.6% in May.
"A neutral rate of 2.25 to 2.5% only makes sense in a world with 2% stable inflation," he said. "It makes no sense in a world with 9%, 6% or even 4% inflation."
"Powell's views on the neutral rate have only served to materially ease financial conditions making the inflation problem worse and his job more difficult," he added.
Stocks have rallied since Tuesday's closing bell, with the S&P 500 climbing 3.85% to move back above 4,000 points for the first time in nearly two months. Base rates rising to 4% would likely considerably dampen investors' newfound confidence in US markets, Ackman warned.
"Bond and stock market have rallied substantially since [Powell's comments] as the implication is that rates need not increase much more," he said. "The problem is that we are not close to a neutral rate."
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