EDITOR'S NOTE: The wild volatility we’ve been experiencing in the markets over the last few months seems to be largely generated by actions supporting two opposing opinions: whether the Fed can or can’t engineer a “soft landing” for the economy. The economic data peppering market sentiment and calculation only serve to reinforce these two positions which so far have netted negative. Hedge fund manager Bill Ackman offers his two cents, stating that there is no way to dissipate inflation unless the Fed acts more aggressively or the market sees a full-on collapse. Both options are likely to lead down the same path. In short, either the Fed does its job or the market does its job, or both somehow converge. Either way, an economic purge in asset values seems inevitable. The last time Ackman issued a similarly dire warning was during the onset of the pandemic, in March of 2020. He then proceeded to make $2 billion betting against the market. What are the chances that his conditional predictions might be right on the money, so to speak, this time around?
Billionaire hedge fund manager Bill Ackman said raging inflation will only dissipate if the Federal Reserve acts more aggressively or the market sell-off turns into a full-on collapse.
“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,” Ackman said in a slew of tweets Tuesday.
The Pershing Square hedge fund manager attributed 2022′s market correction to investors’ lack of confidence that the central bank could squash a 40-year high in inflation. He said the market turmoil will only end if the Fed “puts a line in the sand” on soaring prices.
“If the Fed doesn’t do its job, the market will do the Fed’s job, and that is what is happening now,” Ackman added. “The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy.”
The market has been in a big rout this year as the Federal Reserve’s tightening measures to tame inflation stoked fears of a recession. The central bank raised its benchmark interest rate by half a percentage point earlier this month, the most aggressive step yet. The S&P 500 is down about 18% in 2022, and the equity benchmark briefly dipped into bear market territory last week.
But Ackman believes at this point investors will cheer the Fed raising rates more rapidly because inflation is spiraling out of control.
“Markets will soar once investors can be confident that the days of runaway inflation are over. Let’s hope the Fed gets it right,” Ackman said.
The hedge fund manager said the Fed should demonstrate its seriousness by immediately raising rates to neutral and committing to continue to hike borrowing costs until “the inflation genie is back in the bottle.”
The Fed has indicated similar 50 basis point rate increases are likely at its next few meetings. The rate is currently targeted at 0.75%-1%. The rate-setting Federal Open Market Committee next meets June 14-15.
In March 2020 during the depths of the Covid pandemic, Ackman issued a dire warning on CNBC about the health crisis, saying “hell is coming” and imploring the White House to shut down the country for a month. He made $2 billion betting against the market then.
Originally published on CNBC.