Billionaire hedge fund manager Bill Ackman said the rampant inflation will only dissipate when the Fed acts more aggressively or the market sell-off turns into a full-blown meltdown.
Ackman said in a series of tweets on Tuesday: “Unless the Fed raises rates aggressively, the stock market crashes, triggering a crash in the economy and demand destruction, with no prospect of a material reduction in inflation.”
The Pershing Square hedge fund manager attributed the 2022 market correction to investors’ lack of confidence that the central bank could suppress 40-year high inflation. He said the market turmoil will only end if the Fed “draws a clear line” on soaring prices.
“If the Fed doesn’t do its job, the market does the Fed’s job, and that’s what’s happening right now,” Ackerman added. “The only way to stop the inflation that is raging today is to aggressively tighten monetary policy or collapse.”
Markets have endured a major sell-off this year as the Fed’s tightening measures to curb inflation sparked recession fears. Earlier this month, the central bank raised its benchmark interest rate by half a percentage point, the most aggressive step yet. The S&P 500 is down about 18% in 2022, and the stock benchmark briefly fell into bear market territory last week.
But Ackman believes investors will be cheering the Fed for faster rate hikes at this point because inflation is spiraling out of control.
“Once investors are convinced that the days of runaway inflation are over, the market will soar. Let’s hope the Fed gets it right,” Ackerman said.
The hedge fund manager said the Fed should demonstrate its seriousness by raising interest rates to neutral immediately and promising to keep raising borrowing costs until “the genie of inflation is back in the bottle.”
The Fed said it could raise rates by 50 basis points in the next few meetings. The tax rate is currently targeted at 0.75%-1%. The next meeting of the Federal Open Market Committee, which sets interest rates, is June 14-15.
In March 2020, at the height of the Covid pandemic, Ackman issued a dire warning about the health crisis on CNBC, saying “hell is coming” and imploring the White House to shut down the country for a month. He was shorting a $2 billion bet in the market at the time.