Top Hedge Fund Manager Sees Two Ways Out Of Soaring Inflation, And Neither One Is Pretty
Bill Ackman, chief executive officer of Pershing Square Capital Management LP, speaks during a Bloomberg Television interview in New York, U.S., on Wednesday, Nov. 1, 2017. Ackman discussed his proxy fight at Automatic Data Processing. Photographer: Christopher Goodney/Bloomberg via Getty Images
Christopher Goodney/Bloomberg via Getty Images

Pershing Square Capital Management CEO Bill Ackman said on Tuesday afternoon that there are two ways the United States can escape soaring inflation — the Federal Reserve taking a hard-line stance on rising price levels or an economic collapse.

In a preliminary effort to curb inflation, the Fed increased interest rates by a half point earlier this month — which marked the largest rate hike since May 2000, and followed a quarter point increase from near-zero levels two months ago. However, Ackman argued that inflation is still “out of control” — and that markets are “imploding” as a result.

“If the Fed doesn’t do its job, the market will do the Fed’s job, and that is what is happening now,” Ackman argued on Twitter.

Indeed, the Dow Jones has fallen from over $36,000 at the end of 2021 to under $32,000 as of Tuesday afternoon — tracking with a rise in inflation rates from 7.0% to 8.3%, as well as other economic calamities like the Russian invasion of Ukraine.

“The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy,” Ackman continued. “There is no prospect for a material reduction in inflation unless the Fed aggressively raises rates, or the stock market crashes, catalyzing an economic collapse and demand destruction.”

Though a stock market crash is by no means desirable, an aggressive rate hike would increase the cost of borrowing money — likely slowing economic activity as a result.

Ackman condemned “various current and former Fed members” refraining from an aggressive stance on inflation over the past few days. Atlanta Fed President Raphael Bostic affirmed on Tuesday, for example, that the central bank should exercise caution while raising rates.

“The Fed has already lost credibility for its misread and late pivot on inflation,” Ackman asserted. “Current Fed policy and guidance are setting us up for double-digit sustained inflation that can only be forestalled by a market collapse or a massive increase in rates.”

The “downward market spiral” will end when the Fed draws “a line in the sand” and puts “the inflation genie” back in the bottle, Ackman added. “Markets will soar once investors can be confident that the days of runaway inflation are over. Let’s hope the Fed gets it right.”

Unlike Ackman, President Joe Biden is portraying optimism about the state of the economy.

During a press conference earlier this week, a reporter pressed Biden on “record-high inflation” and “enormously high gas prices” in the United States. “Given the cross-currents of the economy right now — the war in Ukraine, the China lockdowns that we’ve seen — should Americans be prepared for a recession? In your view, is a recession in the United States inevitable?” the reporter asked.

Biden replied simply: “No.”

The reporter followed up: “Why not?”

Among other things, Biden pointed toward gains in employment and a handful of large foreign projects in the United States. “Here’s the situation,” Biden said. “When it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over.”

Despite President Biden’s optimism, the vast majority of Americans are wary of his economic performance. While 64% disagree with his handling of the economy, 70% disapprove of his approach toward inflation.

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