Bill Ackman: "To Control Inflation, the Fed Must Be More Aggressive or the Market Must Collapse"

Bill Ackman, CEO of Pershing Square Capital
Photo by Reuters Yonhap News

[Asia Economy Reporter Jeong Hyunjin] Bill Ackman, CEO of Pershing Square Capital and a Wall Street hedge fund titan, pointed out that the only ways to curb soaring inflation are for the U.S. Federal Reserve (Fed) to take more aggressive action or for the market to completely collapse.

On the 24th (local time), Ackman posted on his Twitter, "There is no realistic chance to physically lower inflation unless the Fed aggressively raises interest rates, the stock market crashes, the economy collapses, and demand disappears." He assessed that the current market correction is happening because investors lack confidence in the Fed amid the worst inflation in 40 years.

Ackman said that regarding the soaring prices, the Fed must clearly draw a line and say it will do whatever is necessary to end this turmoil. He stated, "If the Fed does not do its job, the market will do the Fed’s job instead, and that is what is happening now," adding, "The only way to stop the current surging inflation is either aggressive tightening monetary policy or a complete economic collapse."

Ackman emphasized that investors at this point would support the Fed raising rates faster due to runaway inflation, saying, "The Fed must immediately raise rates to a neutral level and give confidence that it will continue to raise rates until the inflation 'genie' goes back into the bottle." If that happens, "if investors believe that the untamed inflation will be controlled, the market will soar. I hope the Fed takes the right path," he added.

The neutral interest rate Ackman mentioned refers to the "theoretical interest rate level" that allows the economy to recover to its potential growth rate without inflationary or deflationary pressures, currently estimated at around 2.5%. Earlier, Fed Chair Jerome Powell said at an event on the 17th, "If we need to go beyond the widely recognized neutral rate level, we will not hesitate to do so."

The Fed will hold its regular Federal Open Market Committee (FOMC) meeting on June 14-15. The Fed raised the benchmark interest rate by 50 basis points (0.5 percentage points, 1 bp = 0.01 percentage points) earlier this month and has indicated the possibility of another 'big step' (0.5 percentage point rate hike) in June and July. The current U.S. benchmark interest rate is 0.75?1%.