Ackman says rates should be ‘materially higher’ to kill inflation

Billionaire investor Bill Ackman on Thursday said he expected inflation to come down soon, but not to the level of 2% unless the U.S. Federal Reserve maintained “materially higher” interest rates for an extended period.

Ackman’s comments come after the Fed announced a 75-basis-point rate increase in interest rates on Wednesday. That coupled with earlier actions have now jacked the overnight interest rate from near zero to a level between 2.25% and 2.50%.

Chairman Jerome Powell said that he could now allow the central bank to begin to slow the pace of rate increases, depending on inflation. However, he cautioned that an “another unusually large rate increase could be appropriate” when the Fed next meets if inflation does not begin to slow.

In a thread of tweets, Ackman dismissed the Fed’s stance on interest rates as “extremely accommodative”, and said higher rates are required to kill inflation, which is currently hovering around 9%.

“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. I am puzzled to understand how the Fed believes that we are already at neutral,” Ackman said in his tweets.

His tweets come on the same day as the U.S. reported a GDP contraction, a figure which could deter the Fed from continuing to aggressively increase interest rates as it battles high inflation.

The U.S. GDP fell at a 0.9% annualized rate last quarter. Economists polled by Reuters had forecast GDP would rebound at a 0.5% rate.

Link to Ackman’s Twitter thread on interest rates: https://bit.ly/3cPFQIe