Bill Ackman says markets aren’t sure the Fed can fight inflation

  • Markets are not convinced the Federal Reserve can tame record inflation, Bill Ackman tweeted Tuesday.
  • He predicts inflation can only come down if the Fed aggressively raises interest rates or if stocks plummet.
  • “It ends when the Fed puts a line in the sand on inflation and says it will do ‘whatever it takes,'” Ackman said.

Bill Ackman, CEO and founder of Pershing Square Capital Management, said markets face an uncertain environment because

Federal Reserve

has lost credibility in its attempt to fight inflation.

“Inflation is out of control,” Ackman Tweeted Tuesday in a Twitter thread. “Inflation expectations are getting out of control. Markets are imploding because investors aren’t sure @FederalReserve will stop inflation.”

The Fed has lost its credibility in the fight against inflation because it pivoted too late and has been too lazy, Ackman explained. Now the only way to cool things down is with aggressive monetary policy or with an economic collapse.

He pointed out that there are currently unprecedented job openings and 3.6% unemployment, as well as long-term imbalances in supply and demand across sectors.

“There is no prospect of a significant reduction in inflation unless the Fed aggressively raises interest rates or the stock market goes down, catalysing an economic collapse and demand destruction,” Ackman said.

What’s more, with inflation chopping 40-year highs, the Fed has catalysed a downward market spiral and scared buyers. The only way the market can rise again is if the government can tame inflation expectations, Ackman said.

Meanwhile, billionaire investor Ray Dalio said the Fed’s inability to mitigate high inflation will create an environment of negative real returns.

For Dalio, traditional safe havens like cash and bonds are no longer attractive to investors. And his Bridgewater colleague Bob Prince predicted that the U.S. is on the verge of stagflation, and investors don’t fully understand the extent to which inflation will remain elevated.

“It ends when the Fed puts a line in the sand on inflation and says it will do ‘whatever it takes,'” Ackman said. “And so it demonstrates that it’s serious by immediately raising rates to neutral and committing to keep raising rates until the inflation genius is back in the bottle.”

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