Fed interest rate hikes needed until inflation ‘tamed’


Bill Ackman said the Federal Reserve should hike its benchmark interest rate by 1% on Wednesday – arguing the central bank needs to act fast to restore confidence in its ability to counter inflation.

The billionaire founder of hedge fund Pershing Square, who has criticized the Fed’s response to inflation as higher prices took hold in recent months, reiterated his view that Fed Chair Jerome Powell and his colleagues have allowed the problem to “get out of control.”

“Equity and credit markets have therefore lost confidence in the Fed,” Ackman tweeted.

“Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July, and a commitment to continued aggressive [Fed funds] increases and QT until it is clear that inflation has been tamed.”

Ackman expanded on his view in another tweet, asserting the economy would be best served by 1% hike this week and in July and other upcoming Fed meetings until inflation cools.

“And yes, 100 bps tomorrow, in July and thereafter would be better. The sooner the @federalreserve can get to a terminal FF rate and thereafter can begin to ease, the sooner the markets can recover,” Ackman said.

Expectations have shifted toward a 0.75% hike following the release of federal data last week that showed inflation surged 8.6% in May. The spike marked the fastest annual rate of increase since December 1981.

The Fed hasn’t increased its benchmark interest rate by 0.75% since 1994. JPMorgan Chase, Barclays and Jefferies are among the institutions that now expect a 0.75% increase.

Ackman also targeted the Fed’s stance in late May, stating that markets had plunged because investors were “not confident” in the central bank’s ability to engineer a “soft landing” for the economy.

Fed Chair Jerome Powell will address the next rate hike after a meeting Wednesday.
Getty Images

At the time, he warned that only aggressive Fed action or a complete market collapse would tame inflation.

The increasing likelihood of hawkish Fed action has spooked investors since the inflation data surfaced last week, triggering a steep selloff on Wall Street. Bitcoin and other cryptocurrencies have also plummeted as backers seek a safe haven from the economic volatility.

In early May, prior to the release of the latest red-hot inflation data, Powell said the fed was not “actively considering” a 0.75% increase. At the same time, Powell and other top economic policymakers have pledged expeditious action until prices fall.

Ackman’s call was tame compared to the stance offered by famed bond investor Jeffrey Gundlach, who tweeted that the Fed should institute a 3% hike on Wednesday.

Source link

Leave a comment