Hedge fund investor and Pershing Square Capital Management CEO Bill Ackman has a word of advice for the U.S. Federal Reserve, which is due to announce its interest rate decision on Wednesday after a two-day meeting of its monetary policy arm.
Ackman's Call: As financial markets get hammered on fears that higher rates will stifle already-fragile economic growth and bring about a recession, Ackman said on Twitter the Fed should get aggressive.
The central bank is left with the unenviable task of controlling sky-high inflation without hurting growth.
The @federalreserve has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed. Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July, and a commitment— Bill Ackman (@BillAckman) June 14, 2022
Ackman noted that the Fed has left inflation out of control, impairing the confidence of the equity and credit markets.
Market confidence can be restored if the Fed hikes interest rates by 75 basis points and follow it up with similar increases in July, Ackman said. The central bank also needs to commit to following up with aggressive Fed funds rate increases and quantitative tightening until inflationary pressure is brought under control, he added.
The billionaire investor said former Fed Chair Paul Volcker, who required a 20% terminal Fed funds rate for similar levels of inflation, measured comparably.
Ackman said he isn't very hopeful of a 4% terminal rate achieving the objective this time around.
Ackman's Prescription: The hedge fund manager emphasized the need for quickly hitting the terminal rate. He suggested that a 100-basis point hike in July and thereafter would be even better.
The FOMC, headed by Fed Chair Jerome Powell, will announce a decision at 2 pm ET on Wednesday. Economists, on average, expect the central bank to raise interest rates by 50 basis points to a range of 1.25%-1.5%. This follows a 0.25% increase in March and a 50-basis point increase in May to a range of 0.75%-1%.
The central bank will also release its summary of economic projection, followed by a press conference.
Price Action: The SPDR S&P 500 ETF Trust SPY ended Tuesday's session down 0.30% at $373.87, according to Benzinga Pro data.
Photo via Center For Jewish History, NYC on Wikimedia
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